-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R0dEGgHEV7Qe9t7v2UocW0RLw0Pr04YWV2Ps9ot7n0aXhqeiZSlPPjfSCyHqEOLW 2hBUaa3isWRpzbBcLc7cSA== 0000005187-97-000003.txt : 19970328 0000005187-97-000003.hdr.sgml : 19970328 ACCESSION NUMBER: 0000005187-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HOME PRODUCTS CORP CENTRAL INDEX KEY: 0000005187 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 132526821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01225 FILM NUMBER: 97565509 BUSINESS ADDRESS: STREET 1: 5 GIRALDA FARMS CITY: MADISON STATE: NJ ZIP: 07940 BUSINESS PHONE: 201-660-50 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number December 31, 1996 1-1225 AMERICAN HOME PRODUCTS CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-2526821 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) Five Giralda Farms, Madison, NJ 07940-0874 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (201) 660-5000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange On Title of Each Class Which Registered $2 Convertible Preferred Stock, $2.50 par value New York Stock Exchange Common Stock, $.33 - 1/3 par value New York Stock Exchange 6 - 7/8% Notes due April 15, 1997 New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __ State the aggregate market value of the voting stock held by nonaffiliates of the registrant. (The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing). Aggregate market value at March 3, 1997 $41,679,526,717 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date (applicable only to corporate registrants). Outstanding at March 3, 1997 Common Stock, $.33 - 1/3 par value 642,458,986 Documents incorporated by reference: list hereunder the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statements; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933 (the listed documents should be clearly described for identification purposes). (1) 1996 Annual Report to Shareholders - In Parts I, II and IV (2) Proxy Statement filed March 24, 1997 - In Part III PART I ITEM 1. BUSINESS General American Home Products Corporation (the "Company"), a Delaware corporation organized in 1926, is currently engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in two primary business segments: health care products and agricultural products. Health care products include branded and generic ethical pharmaceuticals, biologicals, nutritionals, consumer health care products, medical devices and animal biologicals and pharmaceuticals. Agricultural products include crop protection and pest control products such as herbicides, insecticides, fungicides and plant growth regulators. The Company holds a majority interest in Immunex Corporation, a biopharmaceutical company whose stock is publicly traded. In December 1996, the Company acquired the remaining equity interest in the biopharmaceutical company, Genetics Institute, Inc. ("G.I.") that it did not already own for approximately $1.3 billion. In November 1996, the Company sold a majority interest in the American Home Foods business for approximately $1.2 billion. The Company retained a 20% equity interest in International Home Foods, the successor to American Home Foods. In late 1994, the Company acquired the outstanding common stock of American Cyanamid Company ("Cyanamid"). The aggregate purchase price to acquire all of Cyanamid including acquisition-related fees and expenses was approximately $9.6 billion. Additional information relating to the G.I. and Cyanamid acquisitions, the American Home Foods disposition, and certain other acquisitions and divestitures is set forth in Notes 2 and 3 of the Notes to Consolidated Financial Statements in the Company's 1996 Annual Report to Shareholders and is incorporated herein by reference. In February 1997, the Company acquired the worldwide animal health business of Solvay S.A. for approximately $460 million. Unless stated to the contrary, or unless the context otherwise requires, references to the Company in this report include American Home Products Corporation and its wholly-owned or majority-owned subsidiaries. I-1 Industry Segments Financial information, by industry segment, for the three years ended December 31, 1996 is set forth on page 34 of the Company's 1996 Annual Report to Shareholders and is incorporated herein by reference. The Company is not dependent on any single or major group of customers for its sales. The Company currently manufactures, distributes and sells a diversified line of products in two primary industry segments. The product designations appearing in differentiated type herein are trademarks. HEALTH CARE PRODUCTS - Pharmaceuticals - This sector includes a wide variety of ethical pharmaceutical and biological products for human and veterinary use which are promoted and sold worldwide primarily to wholesalers, pharmacies, hospitals, managed care organizations and physicians. Some of these sales are made to large buying groups representing certain of these customers. Principal product categories for human use and their respective products are: women's health care including PREMARIN, PREMPRO/PREMPHASE, LO/OVRAL (marketed as MIN-OVRAL internationally), NORDETTE and TRIPHASIL (marketed as TRINORDIOL internationally); infant nutritionals (international markets only); cardiovascular including CORDARONE and ZIAC; antiobesity including PONDIMIN and REDUX; mental health including ATIVAN and EFFEXOR; anti- inflammatories including LODINE and ORUVAIL; anti-infectives including MINOCIN, SUPRAX and ZOSYN (marketed as TAZOCIN internationally); vaccines including ORIMUNE and TETRAMUNE; biopharmaceuticals including recombinant Factor VIII; and oncology therapies. In addition, the Company markets generic pharmaceutical products. Principal animal health product categories include vaccines, pharmaceuticals including anthelmintics, endectocides and growth implants. The Company manufactures these products in the United States and Puerto Rico and in 22 foreign countries. Sales of women's health care products in the aggregate accounted for more than 10% of consolidated net sales in 1996, 1995 and 1994. Except for sales of women's health care products, no single pharmaceutical product or other category of products accounted for more than 10% of consolidated net sales in 1996, 1995 or 1994. The operating income before taxes from the women's health care products in the aggregate, and the PREMARIN line of products individually, accounted for more than 10% of consolidated operating income before taxes in 1996, 1995 and 1994. Consumer health care - Principle over-the-counter health care product categories and their respective products are analgesics including ADVIL; cough/cold/allergy remedies including ROBITUSSIN and DIMETAPP; vitamins and mineral supplements including CENTRUM; hemorrhoidal; antacids; and asthma relief items. These products are generally sold to wholesalers, retailers and managed care organizations, and are I-2 primarily promoted to consumers worldwide through advertising. These products are manufactured in the United States and Puerto Rico and in 17 foreign countries. No single consumer health care product or category of products accounted for more than 10% of consolidated net sales or operating income before taxes in 1996, 1995 or 1994. Medical Devices - Principal products in this sector include MONOJECT needles and syringes, ARGYLE tubes, catheters and chest drainage devices, DAVIS & GECK wound closure products, tympanic and predictive thermometers, ophthalmic surgical equipment and vision care products, exercise equipment, cardiopulmonary instrumentation and devices, enteral feeding systems and access devices, microsurgical equipment and other hospital products which are promoted and sold worldwide, principally to physicians, hospitals, other health care institutions and wholesalers. Buying groups also represent certain of these customers. In addition to the United States and Puerto Rico, these products are manufactured in 11 foreign countries. No single medical device product or category of products accounted for more than 10% of consolidated net sales or operating income before taxes in 1996, 1995 or 1994. AGRICULTURAL PRODUCTS - Principal agricultural product categories and their respective products are herbicides including PURSUIT (marketed as PIVOT internationally) and PROWL (marketed as STOMP internationally); insecticides including COUNTER; and fungicides which are promoted to consumers worldwide and generally sold directly to wholesalers and retailers. In addition to the United States and Puerto Rico, these products are manufactured in eight foreign countries. No single agricultural product or category of products exceeded 10% of consolidated net sales or operating income before taxes in 1996, 1995 or 1994. FOOD PRODUCTS - On November 1, 1996, the Company sold a majority interest in the American Home Foods business. Products in this segment included prepared pastas and other entrees, regional specialty foods, condiments, snack products, spreadable fruit products and other food products which were promoted to consumers through advertising and generally sold directly to wholesalers and retailers. The Company retained a 20% equity interest in International Home Foods, the successor to American Home Foods. No single food product or category of products exceeded 10% of consolidated net sales or operating income before taxes in 1996, 1995 or 1994. I-3 Sources and Availability of Raw Materials Generally, raw materials and packaging supplies are purchased in the open market from various outside vendors. The loss of any one source of supply would not have a material adverse effect on the Company's consolidated financial position or results of operations. Patents and Trademarks The Company owns, has applications pending for, and is licensed under many patents relating to a wide variety of products. The Company believes that its patents and licenses are important to its business, but no one patent or license (or group of related patents or licenses) currently is of material importance in relation to its business as a whole. In the pharmaceuticals business, most of the Company's major products are not protected by patents. The non-steroidal anti-inflammatory ("NSAID") LODINE ceased to be under patent protection in the United States in February 1997. The product extensions LODINE XL and LODINE 500 mg. have market exclusivity until 1999. Other prescription products, such as the cardiovasculars INDERAL LA and INDERIDE LA, remain patent protected until late 1997. The anti-depressant EFFEXOR will have patent protection into 2007. TETRAMUNE, a combination vaccine, will have patent protection until 2007. SUPRAX, a third- generation cephalosporin antibiotic, remains under patent protection until 2002. VERELAN, a calcium channel blocker, will have patent protection until 2006. PREMPRO, a combination estrogen and progestin product, will have patent protection until 2006. Sales in the consumer health care and medical devices businesses are largely supported by the Company's trademarks and brand names. These trademarks and brand names are a significant part of the Company's business and have a perpetual life as long as they remain in use. See "Competition" below, for a discussion of generic and store brands competition. In the Agricultural Products segment, the imidazolinone herbicide products SCEPTER and PURSUIT will have patent protection until at least 2006. Seasonality Sales and results of operations of the U.S. agricultural products business are seasonal and tend to be heavily concentrated in the first six months of each year. Sales of consumer health care products are affected by seasonal demand for cold/flu products and, as a result, second quarter results for consumer health care products tend to be lower than results in other quarters. I-4 Competition HEALTH CARE PRODUCTS - The Company operates in the highly competitive health care industry which includes the ethical pharmaceutical, animal health, consumer health care and medical devices businesses. Within the ethical pharmaceutical and animal health businesses, the Company has many major multi-national competitors and numerous other smaller domestic and foreign competitors. Based on net sales, the Company believes it ranks within the top 10 major competitors within the ethical pharmaceutical business category and, with the acquisition of the Solvay S.A. animal health business in the first quarter of 1997, the Company believes it ranks within the top 5 major competitors within the animal health business category. The consumer health care business also has many competitors. Based on net sales, the Company believes it ranks within the top 10 major competitors within this business category. The Company's competitive position in the Health Care Products segment is affected by several factors including resources available to develop, enhance and promote products, customer acceptance, product quality, patent protection, development of alternative therapies by competitors, scientific and technological advances and governmental reforms on pricing and generic substitutes. For prescription products, the growth of managed care organizations, such as health maintenance organizations ("HMOs") and pharmaceutical benefit management companies, has resulted in increased competitive pressures. The continued growth of generic substitutes is further promoted by legislation, regulation and various incentives enacted and promulgated in both the public and private sectors. PREMARIN, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and results of operations. PREMARIN is not currently subject to generic competition in the United States. A U.S. Food and Drug Administration ("FDA") advisory committee meeting was held in July 1995 to discuss relative differences in safety and efficacy among estrogen products and to advise the FDA on the activity of various estrogenic components in PREMARIN relative to the FDA's review of applications for generic conjugated estrogens. The FDA advisory committee concluded that there is insufficient data to assess whether or not any individual component or combination of components of PREMARIN, other than estrone and equilin, must be present to achieve clinical efficacy and safety. In November 1996, the FDA published and sought comment on scientific data on the composition of conjugated estrogens. The Company cannot predict the timing or outcome of the FDA's action on currently pending applications for generic conjugated estrogen products. While the introduction of generic competition ordinarily is expected to significantly impact the market for a brand name product, the extent of such impact on PREMARIN and related products cannot be predicted with certainty due to a number of factors, including the nature of the product and the introduction of new combination estrogen and progestin products in the PREMARIN family. I-5 Health care costs will continue to be the subject of attention in both the public and private sectors in the U.S. Similarly, in international markets, health care spending is subject to increasing governmental review, much of which is focused on pharmaceutical prices. While the Company cannot predict the impact that any future health care initiatives may have on the Company's worldwide results of operations, the Company believes that the pharmaceutical industry will continue to play a very positive role in helping to contain global health care costs through the development of innovative products. The growth of generic and store brands continued to impact some of the Company's consumer health care branded product line categories in 1996 and is expected to continue during 1997. The medical devices business, particularly in the needle and syringe, and suture product lines, is also impacted by competitive market conditions which continue to place significant pressure on prices. AGRICULTURAL PRODUCTS - The Agricultural Products segment has over 40 competitors worldwide and ranks in the top 10 based on net sales. Among these companies, the top 10 competitors are multi-national, representing over 70% of the sales in the agrochemical market. Competitive factors include product efficacy, distribution channels and resource availability for development of new products and improvement of existing ones. There can also be generic competition when products are no longer patent protected. GENERAL - In all business segments, advertising and promotional expenditures are significant costs to the Company and are necessary to effectively communicate information concerning the Company's products to health professionals, to the trade and to consumers. Research and Development Worldwide research and development activities are focused on developing and bringing to market new products to treat and/or prevent some of the most serious health care and agricultural problems. Research and development expenditures totaled $1,429,056,000 in 1996, $1,354,963,000 in 1995 and $817,090,000 in 1994, with approximately 78% of these expenditures in the ethical pharmaceutical area in 1996. The Company currently has 14 New Drug Applications and 23 Supplemental Drug Applications filed with the FDA for review, and 86 active Investigational New Drug Applications and one Biologics License Application pending. During 1996, several major collaborative research and development arrangements continued with other pharmaceutical and biotechnology companies. It is not anticipated, however, that the products developed as a result of these activities will contribute significantly to consolidated revenues or operating profits in the near future. The extent of subsequent contributions from these potential products, if any, cannot presently be predicted. Additionally, the Agricultural Products segment has four products awaiting approval by the United States Environmental Protection Agency ("EPA"). I-6 In December 1996, the Company acquired the remaining equity interest in G.I. for approximately $1.3 billion. The completion of this acquisition will facilitate research and development coordination with Wyeth-Ayerst Research. During 1996, the Company received FDA approval for the arthritis product NAPRELAN, the antiobesity drug REDUX, the non-steroidal anti- inflammatory drugs LODINE XL and LODINE 500 mg., the new rheumatoid arthritis indication for LODINE and the OTC products AXID AR, Children's ADVIL and Junior Strength ADVIL tablets (100 mg.). Regulation The Company's various health care and agricultural products are subject to regulation by government agencies throughout the world. The primary emphasis of these requirements is to assure the safety and effectiveness of the Company's products. In the United States, the FDA, under the Federal Food, Drug and Cosmetic Act and the Public Health Service Act, regulates many of the Company's health care products, including human and animal pharmaceuticals, vaccines, consumer health care products and medical devices. The U.S. Department of Agriculture ("USDA") regulates the Company's domestic animal vaccine products. The FDA's powers include the imposition of criminal and civil sanctions against companies, including seizures of regulated products and criminal sanctions against individuals. The FDA's enforcement powers also include its inspection of the numerous facilities operated by the Company. To facilitate compliance, the Company from time to time may institute voluntary compliance actions such as product recalls when it believes it is appropriate to do so. In addition, many states have similar regulatory requirements. Most of the Company's pharmaceutical products, and an increasing number of its consumer health care products, are regulated under the FDA's new drug approval processes, which mandate pre-market approval of all new drugs. Such processes require extensive time, testing and documentation for approval, resulting in significant costs for new product introductions. The Company's pharmaceutical business is also affected by the Controlled Substances Act, administered by the Drug Enforcement Administration, which regulates strictly all narcotic and habit-forming drug substances. The Company devotes significant resources to dealing with the extensive federal and state regulatory requirements applicable to its products. Federal law also requires drug manufacturers to pay rebates to state Medicaid programs in order for their products to be eligible for federal matching funds under the Social Security Act. Additionally, a number of states are, or may be, pursuing similar initiatives for rebates and other strategies to contain the cost of pharmaceutical products. The federal Vaccines for Children entitlement program enables states to purchase vaccines at federal vaccine prices and limits federal vaccine price increases to the increase in the consumer price index. Federal and state rebate programs are expected to continue. The manufacture and sale of pesticides are regulated by the EPA. No new pesticide and no existing pesticide for a new use may be manufactured, processed or used in the United States without prior notice to the EPA. Outside the United States, agricultural chemicals are regulated by various agencies, often by standards which differ from those in the United States. I-7 Environmental Certain of the Company's operations are affected by a variety of federal, state and local environmental protection laws and regulations and the Company has, in a number of instances, been notified of its potential responsibility relating to the generation, storage, treatment and disposal of hazardous waste. In addition, the Company has been advised that it may be a responsible party in several sites on the National Priority List created by the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), commonly known as Superfund. (See Item 3. Legal Proceedings.) In connection with the spin-off in 1993 by Cyanamid of Cytec Industries Inc. ("Cytec"), Cyanamid's former chemicals business, Cytec assumed the environmental liabilities relating to the chemicals businesses, except for the former chemical business site at Bound Brook, New Jersey. This assumption is not binding on third parties, and if Cytec were unable to satisfy these liabilities, they would, in the absence of other circumstances, be enforceable against Cyanamid. It is the Company's policy to accrue environmental cleanup costs if it is probable that a liability has been incurred and an amount is reasonably estimable. For further information on environmental matters, see Notes 3, 5 and 11 of the Notes to Consolidated Financial Statements in the Company's 1996 Annual Report to Shareholders, which are incorporated herein by reference. Employees At the end of 1996, the Company had 59,747 employees worldwide, with 31,447 employed in the United States including Puerto Rico. Approximately 27% of worldwide employees are represented by various collective bargaining groups. Relations with most organized labor groups remain relatively stable. Financial Information about the Company's Foreign and Domestic Operations Financial information about foreign and domestic operations for the three years ended December 31, 1996, as set forth on page 34 of the Company's 1996 Annual Report to Shareholders, is incorporated herein by reference. The Company's operations outside the United States are conducted primarily through subsidiaries. International sales in 1996 amounted to 41% of the Company's total worldwide sales. I-8 The Company's international businesses are subject to risks of currency fluctuations, governmental actions and other governmental proceedings which are inherent in conducting business outside of the United States. The Company does not regard these factors as deterrents to maintaining or expanding its non-U.S. operations. ITEM 2. PROPERTIES The Company's corporate headquarters and the headquarters of its domestic consumer health care business are located in Madison, New Jersey. The Company's domestic and international ethical pharmaceutical operations and its international consumer health care business are headquartered in three executive/administrative buildings in Radnor and St. Davids, Pennsylvania. The Company's animal health business is headquartered in Overland Park, Kansas. The Company's principal medical devices business maintains its headquarters in St. Louis, Missouri. The Agricultural Products segment maintains its headquarters in Parsippany, New Jersey. The Company's foreign subsidiaries and affiliates, which generally own their properties, have manufacturing facilities in 26 countries outside the United States. The following are the principal manufacturing plants (M) and research laboratories (R) of the Company as of December 31, 1996: INDUSTRY SEGMENT Health Care Products: Alpirsbach, Germany (M) Andover, Massachusetts (M, R) Askeaton, Ireland (M) Balleymoney, N. Ireland (M) Baulkham Hills, Australia (M) Buenos Aires, Argentina (M) Cabuyao, Philippines (M) Carolina, Puerto Rico (M) Catania, Italy (M) Chazy, New York (R) Cherry Hill, New Jersey (M, R) Commerce, Texas (M) Deland, Florida (M) Fort Dodge, Iowa (M, R) Fukuroi City, Japan (M, R) Georgia, Vermont (M) Gosport, Great Britain (M, R) Guayama, Puerto Rico (M) Havant, Great Britain (M, R) Hsin-Chu Hsien, Taiwan (M, R) Maracay, Venezuela (M) Marietta, Pennsylvania (M, R) Montreal, Canada (M, R) Muenster, Germany (M) I-9 Newbridge, Ireland (M) Norfolk, Nebraska (M) Pearl River, New York (M, R) Princeton, New Jersey (R) Radnor, Pennsylvania (R) Richmond, Virginia (M, R) Rouses Point, New York (M, R) Sanford, North Carolina (M) Smithfield, Australia (M) Suzhou, China (M) West Chester, Pennsylvania (M) Agricultural Products: Catania, Italy (M) Genay, France (M) Gravelines, France (M) Hannibal, Missouri (M) Hsin-Chu Hsien, Taiwan (M, R) Iracemapolis, Brazil (R) Paulina, Brazil (M) Princeton, New Jersey (R) Resende, Brazil (M) Schwabenheim, Germany (R) All of the above properties are owned except certain facilities in Cherry Hill, New Jersey, Guayama, Puerto Rico and Suzhou, China which are under lease. The Company also owns or leases a number of other smaller properties worldwide which are used for manufacturing, research, warehousing and office space. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are parties to numerous lawsuits and claims arising out of the conduct of its business, including product liability and other tort claims. There are approximately 250 cases pending, predominantly in Scotland, based upon alleged injuries arising out of the use of the tranquilizer ATIVAN. Substantially all of the cases in Scotland have been supported by governmental legal aid funding, as had other related litigation in the United Kingdom. In 1994, the Legal Aid Board in England, where more than 1,100 cases had been pending, discontinued funding for the English litigation and all of the English ATIVAN cases have now been dismissed. The Northern Ireland Legal Aid Board has also discontinued the funding of the litigation in that jurisdiction. The Scottish Legal Aid Board is currently considering submissions by the Company that public funding for the Scottish litigation should also be discontinued. The Scottish cases have been stayed pending the Legal Aid Board's determination. I-10 There are currently more than 2,700 lawsuits pending against the Company in federal and state courts on behalf of approximately 42,000 plaintiffs alleging injuries as a result of use of the NORPLANT SYSTEM, the Company's implantable contraceptive containing levonorgestrel. Approximately 70 of the cases have been filed as class actions and the remainder are proceeding as individual suits. In December 1994, the Judicial Panel on Multi-District Litigation ("MDL") ordered that all NORPLANT SYSTEM lawsuits filed in federal courts be consolidated for pretrial proceedings in the U.S. District Court in Beaumont, Texas. In August 1996, the MDL court denied a motion by the federal plaintiffs to certify the cases as a class action. Class certification was also denied during 1996 in state courts in New Jersey, Pennsylvania and Illinois and a class relating to claims involving removal difficulties which had been certified by the Circuit Court of Illinois in June 1994 ( Doe v. Wyeth- Ayerst Laboratories (Cir. Ct. Ill., Cook Cty. 1993)) was decertified. The only jurisdiction where the certification issue remains pending is Louisiana, where the issue will not be fully briefed and decided until 1998. Following the denial of class certification, the MDL court scheduled three "bellwether" trials, each involving the claims of five Texas plaintiffs. Rather than proceeding with the first of these trials as scheduled on February 24, 1997, the court entered summary judgment in favor of the Company on all of plaintiffs' claims. It is not known at this point whether the plaintiffs will appeal. The Company will continue to contest these and all other NORPLANT SYSTEM claims. A number of state court "bellwether" trials, primarily in Texas and Indiana, are scheduled to take place during 1997. On March 7, 1994, an action was brought against the Company by Johnson & Johnson ("J&J") and Ortho Pharmaceutical Corporation ("Ortho") currently seeking approximately $270 million in damages alleged to have arisen from a preliminary injunction which was granted in a patent infringement lawsuit brought by the Company and which had prevented J&J and Ortho from marketing an oral contraceptive containing norgestimate for approximately 10 months until it was overturned by the Court of Appeals for the Federal Circuit in a two- to-one decision. Thereafter, in the underlying action in the district court, the jury found against the Company on its claim of infringement and the trial of the damages action is expected to commence in 1997. In an action for patent infringement pending in U.S. District Court (Eastern District of Pennsylvania), McNeilab Inc. has recently alleged that it is entitled to approximately $60 million in compensatory damages against Scandipharm Inc., which would be entitled to seek indemnification from a subsidiary of the Company, Eurand Microencapsulation, S.A. In this action, McNeilab is alleging that pancreatic tablets used to treat cystic fibrosis, which Eurand exclusively supplies to Scandipharm, infringe U.S. patents licensed to McNeilab. Treble damages are also sought for alleged willful infringement. Although the trial court had previously dismissed this action for lack of standing, the appeals court reinstated the lawsuit and it is expected to proceed to trial in 1997. On October 14, 1993, Rite Aid Corporation, Revco D.S. Inc. and other retail drug chains and retail pharmacies filed an action in U.S. District Court (Middle District of Pennsylvania) against the Company, I-11 other pharmaceutical manufacturers and a pharmacy benefit management company alleging that the Company and other defendants provided discriminatory price and promotional allowances to managed care organizations and others in violation of the Robinson-Patman Act. The complaint further alleges collusive conduct among the defendants related to the alleged discriminatory pricing in violation of the Sherman Antitrust Act as well as certain other violations of common law principles of unfair competition. Subsequently, numerous other cases, many of which are purported class actions brought on behalf of retail pharmacies and retail drug and grocery chains, were filed in various federal courts against the Company as well as other pharmaceutical manufacturers and wholesalers. These cases make one or more similar allegations of violations of federal or state antitrust or unfair competition laws. In addition, a mail order pharmacy plaintiff alleges that it was forced out of business and certain plaintiffs also allege that the defendants' patents covering brand name prescription drugs give the defendants power to enter into exclusionary arrangements with certain managed care customers and seek compulsory patent licenses. The various class actions were consolidated as a single class action (the "Consolidated Class Action") which alleges violations of Section 1 of the Sherman Act. All of the federal actions have been coordinated and consolidated for pretrial purposes under the caption In re Brand Name Prescription Drug Antitrust Litigation (MDL 997 N.D.Ill.). These federal actions seek treble damages in unspecified amounts and injunctive and other relief. The court in the federal actions approved an amended settlement among certain defendants, including the Company, and the Consolidated Class Action plaintiffs. The settlement provides, among other things, for certain payments to be made by the settling defendants, over a period of three years, to the Consolidated Class Action plaintiffs. The Company's settlement payments (including payments to be made on behalf of Cyanamid) would total $42.5 million. Notices of appeal of the settlement have been filed by certain class members. The amendment to the settlement, which would be in effect for three years, would prohibit the settling manufacturers from refusing to grant discounts to retailers solely because of their status as retailers and would require that retailers be given the opportunity to demonstrate their ability to move market share and to negotiate and earn discounts similar to the discounts offered to managed care organizations. The settlement also provides that it shall not be deemed or construed to be an admission or evidence of any violation of any statute or law or of any liability or wrongdoing by the Company or of the truth of any of the claims or allegations alleged in the Consolidated Class Action. Also, the Court of Appeals for the Seventh Circuit has agreed to hear the appeal of the denial of the manufacturer defendants' motion for summary judgment that indirect purchasers lack standing to bring federal price fixing claims. The individual federal actions, including those brought by Rite Aid Corporation, Revco D.S. Inc. and other retail drug chains, remain pending against the Company. In addition to the federal actions, similar litigation on behalf of consumers or retail pharmacies has been brought in various state courts, including purported class actions in Alabama, Arizona, California, Colorado, District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New York, Tennessee, Washington and Wisconsin. These actions are all in various pre-trial stages. The actions in Colorado, Washington and New York have been dismissed on pre-trial motions. Plaintiffs have appealed the dismissal of the Washington and New York actions. I-12 The FTC is also investigating allegations of concerted action in the pricing of pharmaceutical products and the Company has provided information in response to a subpoena. The Company has been involved in various antitrust suits and government investigations relating to its marketing and sale of infant formula. The antitrust lawsuits, which were commenced in various federal and state courts, alleged in general that the Company conspired with one or more of its competitors to fix prices of infant formula and to monopolize the market for infant formula products. As previously disclosed, most of the cases as well as a Federal Trade Commission ("FTC") proceeding have been settled and other cases have been terminated without liability to the Company, including an action brought in federal court by the State of Louisiana, which has been dismissed. In Alabama, class certification has been denied in a state court action on behalf of indirect purchasers. The Company is also a defendant in a purported class action brought in federal court under Massachusetts state law on behalf of indirect purchasers of infant formula in Massachusetts. The government agencies that have been conducting investigations of pricing and marketing practices in the infant formula industry include three state attorneys general. The Company has been advised that two other state attorneys general have terminated their investigations of the Company without any action. The Company has entered into settlements with the FTC and state attorneys general concerning pricing practices relating to a marketing program for certain crop protection products. These settlements, which do not admit any liability by the Company, prohibit resale price maintenance in the sale of such crop protection products. The state settlement also provides for a payment of $7.3 million by the Company. A purported class action was filed in state court in Tennessee and alleges similar violations of state antitrust and consumer protection laws by Cyanamid in the sale of crop protection products. The complaint purports to be on behalf of indirect purchasers of Cyanamid's crop protection products in the states of Tennessee, Alabama, California, Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New Mexico, North Carolina, North Dakota, South Dakota, West Virginia, Wisconsin and the District of Columbia. In response to a subpoena from the New York State Attorney General, the Company has provided information relating to the Company's copromotion of Merck's osteoporosis drug FOSAMAX and disease management activities. Pursuant to a consent order entered into by the Company in connection with the acquisition from Solvay S.A. of its animal health business, the Company has divested certain canine and feline vaccines to Schering-Plough Corporation. If Schering-Plough does not obtain USDA approval to manufacture these vaccines itself, the consent order may require certain additional asset divestitures by the Company. I-13 As discussed in Item I, the Company is a party to, or otherwise involved in, legal proceedings under CERCLA and similar state laws directed at the cleanup of various sites including 62 Superfund sites, including the Cyanamid-owned Bound Brook, N.J. site. The Company's potential liability varies greatly from site to site. For some sites, the potential liability is de minimis and, for others, the final costs of cleanup have not yet been determined. As assessments and cleanups proceed, these liabilities are reviewed periodically and are adjusted as additional information becomes available. Environmental liabilities are inherently unpredictable. The liabilities can change substantially due to such factors as additional information on the nature or extent of contamination, methods of remediation required, and other actions by governmental agencies or private parties. The 62 Superfund sites exclude sites for which Cytec assumed full liability and agreed to indemnify Cyanamid but include certain sites for which there is shared responsibility between Cyanamid and Cytec. The Company has no reason to believe that it has any practical exposure to any of the liabilities against which Cytec has agreed to assume and indemnify Cyanamid. The Company has agreed to enter into a settlement with the EPA with respect to a civil administrative action pending against Cyanamid for alleged violation of a provision of the Emergency Planning & Community Right-to-Know Act of 1986. Under the proposed settlement, the Company would pay a civil penalty of $129,000 plus the donation to the local county of certain emergency response equipment. For information concerning certain litigation involving Immunex Corporation, see Part I, Item 3 of the Immunex Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1996, which Item is incorporated herein by reference. In the opinion of the Company, although the outcome of any litigation cannot be predicted with certainty, the ultimate liability of the Company in connection with pending litigation and other matters described above will not have a material adverse effect on the Company's consolidated financial position but could be material to the results of operation in any one accounting period. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. I-14 EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 27, 1997 Each officer is elected to hold office until a successor is chosen or until earlier removal or resignation. None of the executive officers is related to another: Elected to Office Name Age Offices and Positions John R. Stafford 59 Chairman of the Board, President December 1986 and Chief Executive Officer, Chairman of Executive, Finance, Operations and Nominating Committees Business Experience: 1991 to date, Chairman of the Board, President and Chief Executive Officer (President to May 1990 and from February 1994) Robert G. Blount 58 Senior Executive Vice President, October 1995 Director, Member of Executive, Finance and Operations Committees Business Experience: 1991 to October 1995, Executive Vice President October 1995 to date, Senior Executive Vice President Fred Hassan 51 Executive Vice President, October 1995 Director, Member of Finance and Operations Committees Business Experience: To March 1993, President, Wyeth-Ayerst Laboratories Division March 1993 to May 1993, Group Vice President May 1993 to October 1995 Senior Vice President October 1995 to date, Executive Vice President I-15 Elected to Office Name Age Offices and Positions Joseph J. Carr 54 Senior Vice President May 1993 Member of Finance and Operations Committees Business Experience: To April 1991, Vice President April 1991 to May 1993, Group Vice President May 1993 to date, Senior Vice President Louis L. Hoynes, Jr. 61 Senior Vice President and November 1990 General Counsel Member of Finance and Operations Committees Business Experience: 1991 to date, Senior Vice President and General Counsel William J. Murray 51 Senior Vice President October 1995 Member of Finance and Operations Committees Business Experience: To September 1992, President, Agricultural Division, American Cyanamid Company September 1992 to January 1995, Group Vice President, American Cyanamid Company January 1995 to October 1995, Vice President October 1995 to date, Senior Vice President I-16 Elected to Office Name Age Offices and Positions David M. Olivier 53 Senior Vice President January 1996 Member of Finance and Operations Committees Business Experience: To January 1996, President, Wyeth-Ayerst International,Inc. January 1996 to date, Senior Vice President John R. Considine 46 Vice President - Finance February 1992 Member of Finance and Operations Committees Business Experience: To February 1992, Vice President and Treasurer February 1992 to date, Vice President- Finance Paul J. Jones 51 Vice President and Comptroller May 1995 Member of Finance Committee Business Experience: To April 1995, Senior Vice President - Finance and Administration, Wyeth-Ayerst Laboratories Division May 1995 to date, Vice President and Comptroller Rene R. Lewin 50 Vice President - Human May 1994 Resources, Member of Finance Committee Business Experience: To May 1994, Executive Director Human Resources - Worldwide Pharmaceutical Division, Eli Lilly and Company May 1994 to date, Vice President - Human Resources I-17 Elected to Office Name Age Offices and Positions Thomas M. Nee 57 Vice President - Taxes May 1986 Member of Finance Committee Business Experience: 1991 to date, Vice President-Taxes I-18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The New York Stock Exchange is the principal market on which the Company's common stock is traded. Tables showing the high and low sales price for the stock, as reported in the consolidated transaction reporting system, and the dividends paid per common share for each quarterly period during the past two years, as shown on page 36 of the Company's 1996 Annual Report to Shareholders, are incorporated herein by reference. There were 67,467 holders of record of the Company's common stock as of March 3, 1997. ITEM 6. SELECTED FINANCIAL DATA The data with respect to the last five fiscal years, appearing in the Ten-Year Selected Financial Data presented on pages 18 and 19 of the Company's 1996 Annual Report to Shareholders, are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations, appearing on pages 37 through 42 of the Company's 1996 Annual Report to Shareholders, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and Notes on pages 20 through 34 of the Company's 1996 Annual Report to Shareholders, the Report of Independent Public Accountants and the Management Report on Financial Statements on page 35, and Quarterly Financial Data on page 36, are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-1 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Information relating to the Company's directors is incorporated herein by reference to pages 2 through 4 of a definitive proxy statement filed with the Securities and Exchange Commission on March 21, 1997 ("the 1997 Proxy Statement"). (b) Information relating to the Company's executive officers as of March 27, 1997 is furnished in Part I hereof under a separate unnumbered caption ("Executive Officers of the Registrant as of March 27, 1997"). ITEM 11. EXECUTIVE COMPENSATION Information relating to executive compensation is incorporated herein by reference to pages 9 through 14 of the 1997 Proxy Statement. Information with respect to compensation of directors is incorporated herein by reference to pages 5 and 6 of the 1997 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to security ownership is incorporated by reference to pages 7 and 8 of the 1997 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. III-1 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1. Financial Statements The following Consolidated Financial Statements, related Notes and Report of Independent Public Accountants, included on pages 20 through 35 of the Company's 1996 Annual Report to Shareholders, are incorporated herein by reference. Pages Consolidated Balance Sheets as of December 31, 1996 and 1995 20 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 21 Consolidated Statements of Retained Earnings and Additional Paid-in Capital for the years ended December 31, 1996, 1995 and 1994 22 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 23 Notes to Consolidated Financial Statements 24-34 Report of Independent Public Accountants 35 (a)2. Financial Statement Schedules The following consolidated financial information is included in Part IV of this report: Pages Report of Independent Public Accountants on Supplemental Schedule IV-8 Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1996, 1995 and 1994 IV-9 Schedules other than those listed above are omitted because they are not applicable. IV-1 ITEM 14. (Continued) (a)3. Exhibits Exhibit No. Description (2.1) The Company's Statement on Schedule 14D-1 relating to the Company's tender offer for all issued and outstanding shares of American Cyanamid Company, filed on August 10, 1994 (the "Schedule 14D-1"), and all exhibits and amendments thereto are hereby incorporated herein by reference. (2.2) Agreement and Plan of Merger, dated August 17, 1994, as amended, among the Company, AC Acquisition Corp. and American Cyanamid Company, filed as Exhibit (I) to the Report on Schedule 13D for Immunex Corporation filed by the Company, dated December 1, 1994 for the event which occurred on November 21, 1994 is hereby incorporated herein by reference. (3.1) The Company's Restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.1 of the Company's Form 10/A dated April 30, 1996. (3.2) By-Laws, as amended to date, is incorporated herein by reference to Exhibit 3.2 of the Company's Form 10-Q for the quarter ended March 31, 1996. (4.1) Indenture, dated as of April 10, 1992, between the Company and The Chase Manhattan Bank (successor to Chemical Bank), as Trustee, is incorporated by reference to Company's Exhibit 2 of the Company's Form 8-A dated August 25, 1992. (4.2) Supplemental Indenture, dated October 13, 1992, between the Company and The Chase Manhattan Bank (successor to Chemical Bank), as Trustee, is incorporated by reference to Company's Form 10-Q for the quarter ended September 30, 1992. (10.1) A Credit Agreement, dated as of September 9, 1994, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank (successor to Chemical Bank), as agent for the lenders thereunder, filed as Exhibit 11(b)(2) to Amendment No. 7 to the Schedule 14D-1 is hereby incorporated herein by reference. (10.2) B Credit Agreement, dated as of September 9, 1994, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank (successor to Chemical Bank), as agent for the lenders thereunder, filed as Exhibit 11(b)(3) to Amendment No. 7 to the Schedule 14D-1 is hereby incorporated herein by reference. IV-2 ITEM 14. (Continued) (a)3. Exhibits Exhibit No. Description (10.3) First Amendment to A Credit Agreement, dated as of August 4, 1995, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank (as successor to Chemical Bank), as agent for the lenders thereunder is incorporated by reference to Exhibit 10.3 of the Company's Form 10-K for the year ended December 31, 1995. (10.4) First Amendment to B Credit Agreement, dated as of August 4, 1995, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank (successor to Chemical Bank), as agent for the lenders thereunder is incorporated by reference to Exhibit 10.4 of the Company's Form 10-K for the year ended December 31, 1995. (10.5) Second Amendment to A Credit Agreement, dated as of August 2, 1996, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank, as agent for the lenders thereunder. (10.6) Second Amendment to B Credit Agreement, dated as of August 2, 1996, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank, as agent for the lenders thereunder. (10.7)* 1978 Stock Option Plan, as amended to date, is incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-K for the year ended December 31, 1990 (File Number 1-1225). (10.8)* 1980 Stock Option Plan, as amended is incorporated by reference to Exhibit 10.3 of the Company's Form 10-K for the year ended December 31, 1991 (File Number 1-1225). (10.9)* Amendment to the 1980 Stock Option Plan is incorporated by reference to Exhibit 10.7 of the Company's Form 10-K for the year ended December 31, 1995. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. IV-3 ITEM 14. (Continued) (a)3. Exhibits Exhibit No. Description (10.10)* 1985 Stock Option Plan, as amended is incorporated by reference to Exhibit 10.4 of the Company's Form 10-K for the year ended December 31, 1991 (File Number 1-1225). (10.11)* Amendment to the 1985 Stock Option Plan is incorporated by reference to Exhibit 10.9 of the Company's Form 10-K for the year ended December 31, 1995. (10.12)* Amendment to the 1985 Stock Option Plan. . (10.13)* Management Incentive Plan, as amended to date. (10.14)* Supplemental Executive Retirement Plan is incorporated herein by reference to Exhibit (10.6) of the Company's Form 10-K for the year ended December 31, 1990. (10.15)* American Cyanamid Company's Supplemental Executive Retirement Plan is incorporated by reference to Exhibit 10K of American Cyanamid Company's Form 10-K for the year ended December 31, 1988 (File 1-3426). (10.16)* American Cyanamid Company's Supplemental Employees Retirement Plan Trust Agreement, dated September 19, 1989, between American Cyanamid Company and Morgan Guaranty Trust Company of New York is incorporated by reference to Exhibit 10K of American Cyanamid Company's Form 10-K for the year ended December 31, 1989 (File 1-3426). (10.17)* American Cyanamid Company's ERISA Excess Retirement Plan is incorporated by reference to Exhibit 10N of American Cyanamid Company's Form 10-K for the year ended December 31, 1988 (File 1-3426). (10.18)* American Cyanamid Company's Excess Retirement Plan Trust Agreement, dated September 19, 1989, between American Cyanamid Company and Morgan Guaranty Trust Company of New York is incorporated by reference to Exhibit 10M of American Cyanamid Company's Form 10-K for the year ended December 31, 1989 (File 1-3426). (10.19)* 1990 Stock Incentive Plan is incorporated herein by reference to Exhibit 28 of the Company's Form S-8 Registration Statement File No. 33-41434 under the Securities and Exchange Act of 1933, filed June 28, 1991 (File Number 1-1225). *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. IV-4 ITEM 14. (Continued) (a)3. Exhibit Exhibit No. Description (10.20)* Amendment to the 1990 Stock Incentive Plan is incorporated by reference to Exhibit 10.13 of the Company's Form 10-K for the year ended December 31, 1995. (10.21)* Amendment to the 1990 Stock Incentive Plan. (10.22)* 1993 Stock Incentive Plan is incorporated herein by reference to Exhibit I of the Company's Proxy Statement filed March 17, 1994. (10.23)* Amendment to the 1993 Stock Incentive Plan is incorporated by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 1995. (10.24)* Amendment to the 1993 Stock Incentive Plan. (10.25)* 1996 Stock Incentive Plan is incorporated by reference to Exhibit 10.24 of the Company's Form 10-K for the year ended December 31, 1995. (10.26)* Amendment to the 1996 Stock Incentive Plan. (10.27)* Form of Stock Option Agreement. (10.28)* Form of Special Stock Option Agreement (phased vesting) is incorporated by reference to Exhibit 10.27 of the Company's Form 10-K for the year ended December 31, 1995. (10.29)* Form of the Company's Special Stock Option Agreement (three-year vesting) is incorporated by reference to Exhibit 10.28 of the Company's Form 10-K for the year ended December 31, 1995. (10.30)* Amendment to Special Stock Option Agreement. (10.31)* Form of the Company's Restricted Stock Performance Award Agreement under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and 1996 Stock Incentive Plan for an initial award (covering three performance years). (10.32)* Form of the Company's Restricted Stock Performance Award Agreement under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and 1996 Stock Incentive Plan for subsequent awards (covering one performance year). *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. IV-5 ITEM 14. (Continued) (a)3. Exhibit Exhibit No. Description (10.33)* 1994 Restricted Stock Plan for Non-Employee Directors is incorporated herein by reference to Exhibit II of the Company's Proxy Statement filed March 17, 1994. (10.34)* Form of Deferred Compensation Agreement. (10.35)* Savings Plan, as amended, is incorporated herein by reference to Exhibit 99 of the Company's Form S-8 Registration Statement File No. 33-50149 under the Securities and Exchange Act of 1933, filed September 1, 1993. (10.36)* Retirement Plan for Outside Directors, as amended on January 27, 1994 is herein incorporated by reference to Exhibit 10.12 of the Company's Form 10-K for the year ended December 31, 1993. (10.37)* Directors Deferral Plan. (10.38)* Restricted Stock Trust Agreement under the 1993 Stock Incentive Plan is incorporated by reference to Exhibit 10.23 of the Company's Form 10-K for the year ended December 31, 1995. (10.39)* Nonfunded Deferred Compensation Plan for Directors is incorporated by reference to Exhibit 10.25 of the Company's Form 10-K for the year ended December 31, 1995. (11) Computation of Per Share Earnings. (12) Computation of Ratio of Earnings to Fixed Charges. (13) 1996 Annual Report to Shareholders. Such report, except for those portions thereof which are expressly incorporated by reference herein, is furnished solely for the information of the Commission and is not to be deemed "filed" as part of this filing. (21) Subsidiaries of the Company. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. IV-6 ITEM 14. (Continued) (a)3. Exhibit Exhibit No. Description (23) Consent of Independent Public Accountants relating to their report dated January 28, 1997, consenting to the incorporation thereof in Registration Statements on Form S-3 (File Nos. 33-45324 and 33- 57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33- 53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456 and 333- 15509) by reference to the Form 10-K of the Company filed for the year ended December 31, 1996. (27) Financial Data Schedule. (99) Cautionary Statements regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. (99.1) The Part I, Item 3 Legal Proceedings (page 21) section of Immunex Corporation's Report on Form 10-K for the fiscal year ended December 31, 1996, filed on March 18, 1997, is incorporated herein by reference. (b) Reports on Form 8-K None IV-7 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To American Home Products Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in American Home Products Corporation's Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 28, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, N.Y. January 28, 1997 IV-8 American Home Products Corporation and Subsidiaries Schedule II - Valuation and Qualifying Accounts For the Years Ended December 31, 1996, 1995 and 1994 (Dollars in thousands)
Column A Column B Column C Column D Column E Balance Balance at at Beginning Additions Deductions End of Period (A) (B) of Period Description Year ended 12/31/96: Allowance for doubtful accounts $108,164 $88,273 $16,457 $179,980 Allowance for cash discounts 27,445 235,802 239,106 24,141 Allowance for deferred tax 206,644 117,569 29,373 294,840 assets $342,253 $441,644 $284,936 $498,961 Year ended 12/31/95: Allowance for doubtful accounts $77,985 $32,186 $2,007 $108,164 Allowance for cash discounts 21,483 240,871 234,909 27,445 Allowance for deferred tax 250,976 45,604 89,936 206,644 assets $350,444 $318,661 $326,852 $342,253 Year ended 12/31/94: Allowance for doubtful accounts $25,631 $58,752 $6,398 $77,985 Allowance for cash discounts 20,318 151,783 150,618 21,483 Allowance for deferred tax 91,363 228,542 68,929 250,976 assets $137,312 $439,077 $225,945 $350,444
(A) Balances for 1994 reflect the acquisition of American Cyanamid Company effective December 1, 1994. (B) Represents amounts used for the purposes for which the accounts were created and reversal of amounts no longer required. IV-9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN HOME PRODUCTS CORPORATION (Registrant) March 27, 1997 By /S/ Robert G. Blount Robert G. Blount Senior Executive Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date Principal Executive Officer: /S/ John R. Stafford Chairman, President March 27, 1997 John R. Stafford and Chief Executive Officer Principal Financial Officer: /S/ Robert G. Blount Senior Executive Vice March 27, 1997 Robert G. Blount President and Director Principal Accounting Officer: /S/ Paul J. Jones Vice President and March 27, 1997 Paul J. Jones Comptroller Directors: /S/ Clifford L. Alexander, Jr. Director March 27, 1997 Clifford L. Alexander, Jr. /S/ Frank A. Bennack, Jr. Director March 27, 1997 Frank A. Bennack, Jr. /S/ Robin Chandler Duke Director March 27, 1997 Robin Chandler Duke IV-10 Signatures Title Date /S/ John D. Feerick Director March 27, 1997 John D. Feerick /S/ Fred Hassan Director March 27, 1997 Fred Hassan /S/ John P. Mascotte Director March 27, 1997 John P. Mascotte /S/ Mary Lake Polan M.D., Ph.D. Director March 27, 1997 Mary Lake Polan M.D., Ph.D. /S/ Ivan G. Seidenberg Director March 27, 1997 Ivan G. Seidenberg /S/ John R. Torell III Director March 27, 1997 John R. Torell III /S/ William Wrigley Director March 27, 1997 William Wrigley IV-11 INDEX TO EXHIBITS Exhibit No. Description (10.5) Second Amendment to A Credit Agreement, dated as of August 2, 1996, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank, as agent for the lenders thereunder. (10.6) Second Amendment to B Credit Agreement, dated as of August 2, 1996, among the Company, American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated, the several banks and other financial institutions from time to time parties thereto and The Chase Manhattan Bank, as agent for the lenders thereunder. (10.12)* Amendment to the 1985 Stock Option Plan. (10.13)* Management Incentive Plan, as amended to date. (10.21)* Amendment to the 1990 Stock Incentive Plan. (10.24)* Amendment to the 1993 Stock Incentive Plan. (10.26)* Amendment to the 1996 Stock Incentive Plan. (10.27)* Form of Stock Option Agreement. (10.30)* Amendment to Special Stock Option Agreement. (10.31)* Form of the Company's Restricted Stock Performance Award Agreement under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and 1996 Stock Incentive Plan for an initial award (covering three performance years). (10.32)* Form of the Company's Restricted Stock Performance Award Agreement under the 1990 Stock Incentive Plan, 1993 Stock Incentive Plan and 1996 Stock Incentive Plan for subsequent awards (covering one performance year). (10.34)* Form of Deferred Compensation Agreement. (10.37)* Directors Deferral Plan. *Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. Exhibit No. Description (11) Computation of Per Share Earnings. (12) Computation of Ratio of Earnings to Fixed Charges. (13) 1996 Annual Report to Shareholders. Such report, except for those portions thereof which are expressly incorporated by reference herein, is furnished solely for the information of the Commission and is not to be deemed "filed" as part of this filing. (21) Subsidiaries of the Company. (23) Consent of Independent Public Accountants relating to their report dated January 28, 1997, consenting to the incorporation thereof in Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33- 55449, 33-45970, 33-14458, 33-50149, 33-55456 and 333-15509) by reference to the Form 10-K of the Company filed for the year ended December 31, 1996. (27) Financial Data Schedule. (99) Cautionary Statements regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. * Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. EX-10.5 2 Exhibit 10.5 SECOND AMENDMENT TO A CREDIT AGREEMENT Second Amendment (this "Amendment"), dated as of August 2, 1996 among American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated (each, a "Subsidiary Borrower"), American Home Products Corporation (the "Company", and together with the Subsidiary Borrowers, the "Borrowers"), the lending institutions party to the A Credit Agreement referred to below (the "Banks") and The Chase Manhattan Bank, as Agent (in such capacity, the "Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the A Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrowers, the Banks and the Agent are parties to a Credit Agreement, dated as of September 9, 1994, (the "A Credit Agreement"); WHEREAS, the parties hereto wish to amend the A Credit Agreement as herein provided; NOW THEREFORE, it is agreed: 1. AC Acquisition Holding Company is hereby added as a Subsidiary Borrower, with all references in the Credit Documents to Subsidiary Borrower and/or Subsidiary Borrowers to include such company. 2. The first recital of the A Credit Agreement is hereby amended by deleting the amount "$4,000,000,000" in its entirety and inserting in lieu thereof the amount "$3,000,000,000 (as the same may be increased pursuant to subsection 2.5(c) hereof)". 3. Section 1.1 of the A Credit Agreement is hereby amended by deleting the definition of "Applicable Margin" in its entirety and inserting in lieu thereof the following new definition: "Applicable Margin": a percentage equal to, (x) for Alternate Base Rate Loans, 0%, (y) for C/D Rate Loans, .305% and (z) for Eurodollar Rate Loans, .180%. 4. Section 1.1 of the A Credit Agreement is hereby amended by deleting the definition of "Facility Fee Percentage" in its entirety and inserting in lieu thereof the following definition: ""Facility Fee Percentage": a percentage equal to .045%." 5. Section 1.1 of the A Credit Agreement is hereby amended by deleting clause (a) of the definition of "Termination Date" in its entirety and inserting in lieu thereof "(a) August 1, 1997 (as such date may be extended in accordance with the provisions of subsection 2.19)and ". 6. Section 1.1 of the A Credit Agreement is hereby amended by adding the following definitions in appropriate alphabetical order: "Additional Lenders": as defined in subsection 2.5(c). "B Commitments": as defined in subsection 2.5(c). 7. Section 2.5 of the Credit Agreement is hereby amended by (x) deleting clause (b) thereof in its entirety and by substituting therefore the following: "(b)" Subject to the provisions of Section 2.5(c), the Commitments once terminated or reduced pursuant to subsection 2.5(a) may not be reinstated." and (y) adding a new subsection 2.5(c) to read: "(c) The Company may from time to time, by notice to the Agent (which shall promptly deliver a copy to each of the Lenders), request that the Commitments be increased (regardless of whether the Commitments or the B Commitments have theretofore been reduced) by an amount that is not less than $100,000,000 and will not result in the Commitments under this Agreement plus the Commitments under and as defined in the B Credit Agreement (the "B Commitments") exceeding $8,000,000,000. Each such notice shall set forth the requested amount of the increase in the Commitments and the B Commitments and the date (which date shall be a Business Day) on which such increase is to become effective (which shall be not fewer than 20 days after the date of such notice), and shall offer some or all Lenders the opportunity to increase their Commitments. Each Lender (as determined by the Company, in its sole discretion) that has received such request shall, by notice to the Company and the Agent given not more than 10 Business Days after the date of the Company's notice, either agree to increase its Commitment by all or a portion of the offered amount or decline to increase its Commitment (and any Lender that does not deliver such a notice within such period of 10 Business Days shall be deemed to have declined to increase its Commitment). In the event that, on the 10th Business Day after the Company shall have delivered a notice pursuant to the first sentence of this paragraph, the requested Lenders shall have agreed pursuant to the preceding sentence to increase their Commitments by an aggregate amount less than the increase in the Commitments requested by the Company, the Company shall have the right to arrange for one or more banks or other financial institutions (any such bank or other financial institution being called an "Additional Lender"), which may include any Lender, to extend Commitments or increase their existing Commitments in an aggregate amount equal to the unsubscribed amount, provided that each Additional Lender, if not already a Lender hereunder, shall be subject to the approval of the Agent (which approval shall not be unreasonably withheld) and shall execute a joinder agreement reasonably satisfactory to the Agent, pursuant to which it agrees to be bound by the terms of this Agreement as a Lender hereunder. If (and only if) Lenders (including Additional Lenders) shall have agreed to increase their Commitments or to extend new Commitments in an aggregate amount not less than $100,000,000, such increases and such new Commitments shall become effective on the date specified in the notice delivered by the Company pursuant to the first sentence of this subsection; provided that the Company may elect not to so increase the Commitments in the event that the amount of the increase approved by such Lenders is less than the amount initially requested by the Company." 8. In order to induce the Agent and the Banks to enter into this Amendment, the Borrowers hereby represent and warrant that (x) no Default or Event of Default exists on the Second Amendment Effective Date (as defined herein) both before and after giving effect to this Amendment and (y) all of the representations and warranties contained in the Credit Documents shall be true and correct in all material respects on the Second Amendment Effective Date both before and after giving effect to this Amendment with the same effect as though such representations and warranties had been made on and as of the Second Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 9. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the A Credit Agreement or any other Credit Document. 10. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Agent. 11. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of New York. 12. Notwithstanding anything to the contrary contained in the A Credit Agreement or this Amendment, for purposes of this Amendment "Banks" shall mean each of the lending institutions who shall have delivered (including by way of telecopier) by July 30, 1996 (or such later date as the Agent and the Company shall agree) a signed copy hereof to the Agent as provided in Section 8.2 of the A Credit Agreement that has been accepted by the Company. 13. As of the Second Amendment Effective Date, (v) Schedule I to the A Credit Agreement shall be revised to read as set forth on Annex I hereto, (w) Schedule II to the A Credit Agreement shall be revised by the Agent to give effect to such revised Schedule I, (x) the Banks shall constitute all the Lenders and no other entity that had been a Lender will continue to be a Lender, (y) either (A) all amounts owing to Lenders prior to July 30, 1996 who are not Banks (the "Former Lenders") shall be paid to such Former Lenders or (B) such Former Lenders shall assign their Commitments to one or more Banks and (z) no such Former Lender will continue to be a Lender. 14. This Amendment shall become effective as of the date hereof (the "Second Amendment Effective Date") on the date upon which (x) each of the Borrowers, the Agent and Banks (as defined in paragraph 12 hereto) with Commitments as set forth on Annex I hereto aggregating $3,000,000,000 shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of telecopier) the same to the Agent as provided in Section 8.2 of the A Credit Agreement and (y) the Second Amendment to the B Credit Agreement, dated as of the date hereof, has become effective. 15. From and after the Second Amendment Effective Date, all references in the A Credit Agreement and each of the other A Credit Documents to the A Credit Agreement shall be deemed to be references to the A Credit Agreement after giving effect to this Amendment. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. AMERICAN HOME PRODUCTS CORPORATION By:_______________________________ Title: Vice President - Finance AMERICAN HOME FOOD PRODUCTS, INC. By: Title: Vice President SHERWOOD MEDICAL COMPANY By: Title: Vice President A. H. ROBINS COMPANY, INCORPORATED By:_______________________________ Title: Vice President AC ACQUISITION HOLDING COMPANY By:___________________________________ Title: Vice President and Treasurer ANNEX I Schedule I COMMITMENTS Bank Commitment $ TOTAL $3,000,000,000 ABN AMRO BANK N.V., NEW YORK BRANCH By:_____________________________ Title: Vice President By:_____________________________ Title: Assistant Vice President BANCA NAZIONALE DEL LAVORO S.p.A. NEW YORK BRANCH By:_____________________________ Title: First Vice President By:_____________________________ Title: Vice President BANCA COMMERCIALE ITALIANA NEW YORK BRANCH By:__________________________________ Title: Vice President By:__________________________________ Title: Assistant Vice President BANK OF AMERICA NT & SA By:_____________________________ Title: Vice President BANK OF MONTREAL By:_____________________________ Title: THE BANK OF NOVA SCOTIA By:_____________________________ Title: THE BANK OF TOKYO-MITSUBISHI, LTD. NEW YORK BRANCH By:_____________________________ Title: Vice President BANQUE NATIONALE DE PARIS By:____________________________________ By:____________________________________ BANQUE PARIBAS By:_____________________________ Title: By:_____________________________ Title: BAYERISCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BAYERISCHE VEREINSBANK AG, NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By:_____________________________ Title: CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY By:__________________________________ Title: CARIPLO - CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE SPA GRAND CAYMAN BRANCH By:_____________________________ Title: Vice President By:_____________________________ Title: SVP & General Manager CITIBANK, N.A. By:_____________________________ Title: COMMERZBANK AKTIENGESELLSCHAFT New York and/or Grand Cayman Branches By:__________________________________ Title: By:__________________________________ Title THE CHASE MANHATTAN BANK By:__________________________________ Title: Vice President CORESTATES BANK, N.A. By:_____________________________ Title: Vice President CRESTAR BANK By:__________________________________ Title: Senior Vice President THE DAI-ICHI KANGYO BANK LTD. By:__________________________________ Title: Assistant Vice President DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By:_____________________________ Title: By:_____________________________ Title: THE FIRST NATIONAL BANK OF CHICAGO By:_____________________________ Title: FIRST UNION NATIONAL BANK By:_____________________________ Title: FIRST NATIONAL BANK By:_____________________________ Title: Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINA SPA - NEW YORK LIMITED BRANCH By:___________________________________ Title: MELLON BANK, N.A. By:_____________________________ Title: MIDLAND BANK PLC, NEW YORK BRANCH By:__________________________________ Title: Authorized Signatory THE MITSUI TRUST AND BANKING COMPANY, LIMITED - NEW YORK BRANCH By:________________________________ Title: Vice President & Manager MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:_____________________________ Title: Vice President NATIONAL WESTMINSTER BANK PLC By:_____________________________ Title: Vice President NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By:_____________________________ Title: Senior Vice President By:_____________________________ Title: Vice President THE NORINCHUKIN BANK, NEW YORK BRANCH By:_____________________________ Title: General Manager PNC BANK, NATIONAL ASSOCIATION By:_____________________________ Title: Vice President COOPERATIVE CENTRALE RAIFFEISEN - BOERENLEENBANK, B.A., "RABOBANK NEDERLAND" By:__________________________________ Vice President By:__________________________________ Vice President, Manager ROYAL BANK OF CANADA GRAND CAYMAN BRANCH By:_____________________________ Title: Senior Manager THE SAKURA BANK, LIMITED By:__________________________________ Title: Vice President & Manager THE SANWA BANK LTD, NEW YORK BRANCH By:____________________________________ Title: Vice President & Area Manager STANDARD CHARTERED BANK By:__________________________________ Title: Assistant Vice President SWISS BANK CORPORATION, NEW YORK BRANCH By:____________________________________ Title: Associate Director Banking Finance Support, N.A. By:___________________________________ Title: Associate Director Credit Risk Mgmt. THE BANK OF NEW YORK By:__________________________________ Title: Vice President THE FUJI BANK, LIMITED New York Branch By:__________________________________ Title: Senior Vice President THE INDUSTRIAL BANK OF JAPAN LIMITED By:__________________________________ Title: Senior Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION By:__________________________________ Title: Senior Vice President THE NORTHERN TRUST COMPANY By:__________________________________ Title: Vice President THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By:__________________________________ Title: Joint General Manager THE SUMITOMO TRUST & BANKING CO., LTD. New York Branch By:__________________________________ Title: Senior Vice President Manager, Corporate Finance Dept. THE TOKAI BANK, LIMITED NEW YORK BRANCH By:_____________________________ Title: Vice President TORONTO DOMINION (NEW YORK), INC. By:_____________________________ Title: Vice President THE TOYO TRUST & BANKING CO., LTD. NEW YORK BRANCH By:_____________________________ Title: Vice President WACHOVIA BANK OF GEORGIA, N.A. By:_____________________________ Title: Vice President WESTPAC BANKING CORPORATION By:__________________________________ Title: Assistant Vice President YASUDA TRUST & BANKING By:__________________________________ Title: First Vice President EX-10.6 3 Exhibit 10.6 SECOND AMENDMENT TO B CREDIT AGREEMENT Second Amendment (this "Amendment"), dated as of August 2, 1996 among American Home Food Products, Inc., Sherwood Medical Company, A.H. Robins Company, Incorporated (each, a "Subsidiary Borrower"), American Home Products Corporation (the "Company", and together with the Subsidiary Borrowers, the "Borrowers"), the lending institutions party to the B Credit Agreement referred to below (the "Banks") and The Chase Manhattan Bank, as Agent (in such capacity, the "Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the B Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrowers, the Banks and the Agent are parties to a Credit Agreement, dated as of September 9, 1994, (the "B Credit Agreement"); WHEREAS, the parties hereto wish to amend the B Credit Agreement as herein provided; NOW THEREFORE, it is agreed: 1. AC Acquisition Holding Company is hereby added as a Subsidiary Borrower, with all references in the Credit Documents to Subsidiary Borrower and/or Subsidiary Borrowers to include such company. 2. The first recital of the B Credit Agreement is hereby amended by adding after the reference to "3,000,000,000" therein the phrase "(as the same may be increased pursuant to subsection 2.5(c) hereof)". 3. Section 1.1 of the B Credit Agreement is hereby amended by deleting the definition of "Applicable Margin" in its entirety and inserting in lieu thereof the following new definition: "Applicable Margin": for any day, the rate per annum set forth below opposite the Rating Period then in effect, it being understood that the Applicable Margin for (x) Alternate Base Rate Loans shall be the percentage set forth under the column "Alternate Base Rate Margin", (y) C/D Rate Loans shall be the percentage set forth under the column "C/D Rate Margin" and (z) Eurodollar Rate Loans shall be the percentage set forth under the column "Eurodollar Rate Margin": Alternative Eurodollar Rating Base Rate C/D Rate- Rate Period Margin Margin Margin Category A Period 0% .2250% .1000% Category B Period 0% .2450% .1200% Category C Period 0% .2850% .1600% Category D Period 0% .3250% .2000% Category E Period 0% .3750% .2500% 4. Section 1.1 of the B Credit Agreement is hereby amended by deleting the definition of "Facility Fee Percentage" in its entirety and inserting in lieu thereof the following definition: ""Facility Fee Percentage": a percentage equal to at any time (i) during a Category A Period, .0500%, (ii) during a Category B Period, .0550%, (iii) during a Category C Period, .0650%, (iv) during a Category D Period, .1000% and (v) during a Category E Period, .1500%." 5. Section 1.1 of the B Credit Agreement is hereby amended by deleting clause (a) of the definition of "Termination Date" in its entirety and inserting in lieu thereof "(a) August 2, 2001 and ". 6. Section 1.1 of the B Credit Agreement is hereby amended by adding the following definitions in appropriate alphabetical order: "A Commitments": as defined in subsection 2.5(c). "Additional Lenders": as defined in subsection 2.5(c). 7. Subsection 2.5 of the B Credit Agreement is hereby amended by (x) deleting clause (b) thereof in its entirety and by substituting therefore the following: "(b) Subject to the provisions of Section 2.5(c), the Commitments once terminated or reduced pursuant to subsection 2.5(a) may not be reinstated." and (y) adding a new subsection 2.5(c) to read: "(c) The Company may from time to time, by notice to the Agent (which shall promptly deliver a copy to each of the Lenders), request that the Commitments be increased (regardless of whether the Commitments or the A Commitments have theretofore been reduced) by an amount that is not less than $100,000,000 and will not result in the Commitments under this Agreement plus the Commitments under and as defined in the A Credit Agreement (the "A Commitments") exceeding $8,000,000,000. Each such notice shall set forth the requested amount of the increase in the Commitments and the A Commitments and the date (which date shall be a Business Day) on which such increase is to become effective (which shall be not fewer than 20 days after the date of such notice), and shall offer some or all Lenders the opportunity to increase their Commitments. Each Lender (as determined by the Company, in its sole discretion) that has received such request shall, by notice to the Company and the Agent given not more than 10 Business Days after the date of the Company's notice, either agree to increase its Commitment by all or a portion of the offered amount or decline to increase its Commitment (and any Lender that does not deliver such a notice within such period of 10 Business Days shall be deemed to have declined to increase its Commitment). In the event that, on the 10th Business Day after the Company shall have delivered a notice pursuant to the first sentence of this paragraph, the requested Lenders shall have agreed pursuant to the preceding sentence to increase their Commitments by an aggregate amount less than the increase in the Commitments requested by the Company, the Company shall have the right to arrange for one or more banks or other financial institutions (any such bank or other financial institution being called an "Additional Lender"), which may include any Lender, to extend Commitments or increase their existing Commitments in an aggregate amount equal to the unsubscribed amount, provided that each Additional Lender, if not already a Lender hereunder, shall be subject to the approval of the Agent (which approval shall not be unreasonably withheld) and shall execute a joinder agreement reasonably satisfactory to the Agent, pursuant to which it agrees to be bound by the terms of this Agreement as a Lender hereunder. If (and only if) Lenders (including Additional Lenders) shall have agreed to increase their Commitments or to extend new Commitments in an aggregate amount not less than $100,000,000, such increases and such new Commitments shall become effective on the date specified in the notice delivered by the Company pursuant to the first sentence of this subsection; provided that the Company may elect not to so increase the Commitments in the event that the amount of the increase approved by such Lenders is less than the amount initially requested by the Company." 8. In order to induce the Agent and the Banks to enter into this Amendment, the Borrowers hereby represent and warrant that (x) no Default or Event of Default exists on the Second Amendment Effective Date (as defined herein) both before and after giving effect to this Amendment and (y) all of the representations and warranties contained in the Credit Documents shall be true and correct in all material respects on the Second Amendment Effective Date both before and after giving effect to this Amendment with the same effect as though such representations and warranties had been made on and as of the Second Amendment Effective Date (it being understood that any representation or warranty made as of a specific date shall be true and correct in all material respects as of such specific date). 9. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the B Credit Agreement or any other Credit Document. 10. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Agent. 11. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of New York. 12. Notwithstanding anything to the contrary contained in the B Credit Agreement or this Amendment, for purposes of this Amendment "Banks" shall mean each of the lending institutions who shall have delivered (including by way of telecopier) by July 30, 1996 (or such later date as the Agent and the Company shall agree) a signed copy hereof to the Agent as provided in Section 8.2 of the B Credit Agreement that has been accepted by the Company. 13. As of the Second Amendment Effective Date, (v) Schedule I to the B Credit Agreement shall be revised to read as set forth on Annex I hereto, (w) Schedule II to the B Credit Agreement shall be revised by the Agent to give effect to such revised Schedule I and (x) the Banks shall constitute all the Lenders and no other entity that had been a Lender will continue to be a Lender, (y) either (A) all amounts owing to Lenders prior to July 30, 1996 who are not Banks (the "Former Lenders") shall be paid to such Former Lenders or (B) such Former Lenders shall assign their Commitments to one or more Banks and (z) no such Former Lender will continue to be a Lender. 14. This Amendment shall become effective as of the date hereof (the "Second Amendment Effective Date") on the date upon which (x) each of the Borrowers, the Agent and the Banks (as defined in paragraph 12) with Commitments as set forth on Annex I herein aggregating $3,000,000,000 shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of telecopier) the same to the Agent as provided in Section 8.2 of the B Credit Agreement and (y) the Second Amendment to the A Credit Agreement, dated as of the date hereof, has become effective. 15. From and after the Second Amendment Effective Date, all references in the B Credit Agreement and each of the other Credit Documents to the B Credit Agreement shall be deemed to be references to the B Credit Agreement after giving effect to this Amendment. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. AMERICAN HOME PRODUCTS CORPORATION By: Title: Vice President - Finance AMERICAN HOME FOOD PRODUCTS, INC. By: Title: Vice President SHERWOOD MEDICAL COMPANY By: Title: Vice President A. H. ROBINS COMPANY, INCORPORATED By: Title: AC ACQUISITION HOLDING COMPANY By:_____________________________ Title:Vice President and Treasurer ANNEX I Schedule I COMMITMENTS Bank Commitment $ TOTAL $3,000,000,000 ABN AMRO BANK N.V., NEW YORK BRANCH By:_____________________________ Title: Vice President By:_____________________________ Title: Assistant Vice President BANCA NAZIONALE DEL LAVORO S.p.A. NEW YORK BRANCH By:_____________________________ Title: First Vice President By:_____________________________ Title: Vice President BANCA COMMERCIALE ITALIANA NEW YORK BRANCH By:__________________________________ Title: Vice President By:__________________________________ Title: Assistant Vice President BANK OF AMERICA NT & SA By:_____________________________ Title: Vice President BANK OF MONTREAL By:_____________________________ Title: THE BANK OF NOVA SCOTIA By:_____________________________ Title: THE BANK OF TOKYO-MITSUBISHI, LTD. NEW YORK BRANCH By:_____________________________ Title: Vice President BANQUE NATIONALE DE PARIS By:____________________________________ By:____________________________________ BANQUE PARIBAS By:_____________________________ Title: By:_____________________________ Title: BAYERISCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: BAYERISCHE VEREINSBANK AG, NEW YORK BRANCH By:_____________________________ Title: By:_____________________________ Title: THE BOATMEN'S NATIONAL BANK OF ST. LOUIS By:_____________________________ Title: CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY By:__________________________________ Title: CARIPLO - CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE SPA GRAND CAYMAN BRANCH By:_____________________________ Title: Vice President By:_____________________________ Title: SVP & General Manager CITIBANK, N.A. By:_____________________________ Title: COMMERZBANK AKTIENGESELLSCHAFT New York and/or Grand Cayman Branches By:__________________________________ Title: By:__________________________________ Title THE CHASE MANHATTAN BANK By:__________________________________ Title: Vice President CORESTATES BANK, N.A. By:_____________________________ Title: Vice President CRESTAR BANK By:__________________________________ Title: Senior Vice President THE DAI-ICHI KANGYO BANK LTD. By:__________________________________ Title: Assistant Vice President DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By:_____________________________ Title: By:_____________________________ Title: THE FIRST NATIONAL BANK OF CHICAGO By:_____________________________ Title: FIRST UNION NATIONAL BANK By:_____________________________ Title: FIRST NATIONAL BANK By:_____________________________ Title: Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINA SPA - NEW YORK LIMITED BRANCH By:___________________________________ Title: MELLON BANK, N.A. By:_____________________________ Title: MIDLAND BANK PLC, NEW YORK BRANCH By:__________________________________ Title: Authorized Signatory THE MITSUI TRUST AND BANKING COMPANY, LIMITED - NEW YORK BRANCH By:________________________________ Title: Vice President & Manager MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:_____________________________ Title: Vice President NATIONAL WESTMINSTER BANK PLC By:_____________________________ Title: Vice President NORDDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By:_____________________________ Title: Senior Vice President By:_____________________________ Title: Vice President THE NORINCHUKIN BANK, NEW YORK BRANCH By:_____________________________ Title: General Manager PNC BANK, NATIONAL ASSOCIATION By:_____________________________ Title: Vice President COOPERATIVE CENTRALE RAIFFEISEN - BOERENLEENBANK, B.A., "RABOBANK NEDERLAND" By:__________________________________ Vice President By:__________________________________ Vice President, Manager ROYAL BANK OF CANADA GRAND CAYMAN BRANCH By:_____________________________ Title: Senior Manager THE SAKURA BANK, LIMITED By:__________________________________ Title: Vice President & Manager THE SANWA BANK LTD, NEW YORK BRANCH By:____________________________________ Title: Vice President & Area Manager STANDARD CHARTERED BANK By:__________________________________ Title: Assistant Vice President SWISS BANK CORPORATION, NEW YORK BRANCH By:____________________________________ Title: Associate Director Banking Finance Support, N.A. By:___________________________________ Title: Associate Director Credit Risk Mgmt. THE BANK OF NEW YORK By:__________________________________ Title: Vice President THE FUJI BANK, LIMITED New York Branch By:__________________________________ Title: Senior Vice President THE INDUSTRIAL BANK OF JAPAN LIMITED By:__________________________________ Title: Senior Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION By:__________________________________ Title: Senior Vice President THE NORTHERN TRUST COMPANY By:__________________________________ Title: Vice President THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH By:__________________________________ Title: Joint General Manager THE SUMITOMO TRUST & BANKING CO., LTD. New York Branch By:__________________________________ Title: Senior Vice President Manager, Corporate Finance Dept. THE TOKAI BANK, LIMITED NEW YORK BRANCH By:_____________________________ Title: Vice President TORONTO DOMINION (NEW YORK), INC. By:_____________________________ Title: Vice President THE TOYO TRUST & BANKING CO., LTD. NEW YORK BRANCH By:_____________________________ Title: Vice President WACHOVIA BANK OF GEORGIA, N.A. By:_____________________________ Title: Vice President WESTPAC BANKING CORPORATION By:__________________________________ Title: Assistant Vice President YASUDA TRUST & BANKING By:__________________________________ Title: First Vice President EX-10.12 4 Exhibit 10.12 WHEREAS, Section 8 of the American Home Products Corporation (the "Company") 1985 Stock Option Plan (the "1985 Plan") authorizes the Board of Directors to amend the 1985 Plan, the Compensation and Benefits Committee recommends that certain amendments as described below be made to the 1985 Plan; NOW, THEREFORE, Section 6 of the 1985 Plan is hereby amended as follows: 1. Section 6(c)(ii) of the 1985 Plan is deleted in its entirety, with such Section to be reserved for future amendment. 2. Section 6(c)(iii) of the 1985 Plan is hereby amended by deleting therefrom the language [surrounded by brackets] as follows: (iii) Upon exercise of Stock Appreciation Rights, the holder thereof shall be entitled to elect to receive therefor payment in the form of shares of Common Stock (rounded down to the next whole number so no fractional shares are issued), cash or any combination thereof in an amount equal in value to the difference between the Option Price per share and the fair market value per share of Common Stock on the date of exercise multiplied by the number of shares in respect of which the Stock Appreciation Rights shall have been exercised, subject to any limitation on such amount which the Committee may in its discretion impose [at the time of grant of the Stock Appreciation Rights. Such election as to the form of payment shall be subject to the consent of the Committee which consent or disapproval may be given at any time after the election to which it relates.] The fair market value of Common Stock shall be deemed to be the mean between the highest and lowest sale prices of the Common Stock on the Consolidated Transaction Reporting System on the date the Stock Appreciation Right is exercised or if no transaction on the Consolidated Transaction Reporting System occurred on such date, then on the last preceding day on which a transaction did take place. 3. Section 6(c)(iv) of the 1985 Plan is hereby amended by deleting therefrom the language [surrounded by brackets] and adding text *surrounded by stars* as follows: (iv) Any exercise by an officer or director of Stock Appreciation Rights, as well as any election by such officer or director as to the form of payment to such officer or director (Common Stock, cash or any combination thereof), [which election is subject to the consent of the Committee in its sole discretion as provided in subparagraph (iii) hereof,] shall be made during the ten-day period beginning on the third business day following the release for publication of any quarterly or annual statement of sales and earnings by the Company and ending on the twelfth business day following the date of such release *("window period")*. For purposes hereof officer shall mean only officers who are subject to Section 16(b) of the Securities Exchange Act of 1934, as amended. In the event that a director or officer of the Company subject to Section 16(b) of the Securities Exchange Act of 1934 exercises a Stock Appreciation Right for cash or stock pursuant to this Section 6 during a "window period," [as provided in Rule 16b-3 under the Securities Exchange Act of 1934], the day on which such right is effectively exercised shall be that day, if any, during such "window period" which is designated by the Committee in its discretion for all such exercises by such individuals during such period. If no such day is designated, the day of effective exercise shall be determined in accordance with normal administrative practices of the Plan. EX-10.13 5 American Home Products Corporation Management Incentive Plan (As amended by the Board of Directors on February 6, 1997, subject to approval by stockholders on April 28, 1997.) I. Purpose The Management Incentive Plan (the "Plan") is maintained by the Corporation primarily for the purpose of providing immediate and deferred incentive compensation for a select group of management and highly compensated employees and is designed to provide for awards to selected key salaried employees in executive, administrative, technical, professional or other important capacities, who individually, or as members of a group, contribute in a substantial degree to the success of the Company, thus affording to them a means of participating in that success and an incentive to contribute further to that success. II. Definitions The following words and phrases as used herein shall have the meanings set forth below: (1) "Company" shall mean American Home Products Corporation (the Corporation), and any corporation, domestic or foreign, 50% or more of whose share voting power is held, directly or indirectly, by the Company. (2) "Employee" shall mean any key salaried employee of the Company whether or not an Officer or Director, including individuals whose employment has terminated during the applicable year by reason of death or retirement. (3) "Committee" shall mean the Compensation and Benefits Committee consisting of three or more Corporation Directors who are not Employees. (4) "Average Net Capital" shall mean the average of the beginning and ending balances, shown in the Corporation's Consolidated Balance Sheet, of the Stockholders' Equity and funded debt. (5) "Net Income" shall mean the "net income for year," after taxes, shown in the Corporation's Consolidated Statement of Income, adjusted, however, by adding any amount by which such net income after taxes has been reduced by provision for awards under the Plan. (6) "Incentive Earnings" shall mean the excess of Net Income for any year over the greater of (a) an amount equal to 12% of Average Net Capital or b) an amount equal to $.375 multiplied by the average number of shares of the Corporation's Common Stock outstanding at the close of business on each day of the year assuming full conversion of the Corporation's Preferred Stock. The amount of Incentive Earnings shall be reported to the Committee by the Corporation's Treasurer as promptly after the close of the year as is practical; provided, however, that such Incentive Earning's and awards based thereon shall be adjusted downward, if necessary, to reflect the net income for the year certified by the Corporation's independent public accountants as adjusted as provided in II (5) above. In the event of stock split, stock dividend or other relevant change in the Corporation's capitalization, the Committee shall, subject to the approval of the Board of Directors, appropriately adjust such $.375 per share of the Corporation's Common Stock. (7) "Award Fund" shall mean the amount, not in excess of 12% of Incentive Earnings, which is recommended by the Committee and approved by the Board of Directors as the maximum amount to be used for awards under the Plan for the applicable year. Any unawarded portion of the Award Fund shall not be available for awards for subsequent years. III. Administration The Plan shall be administered by the Committee which may make such determinations, make such awards and take such other action in connection with the Plan as it deems necessary, taking into consideration the recommendations of management. Such determinations, awards and action shall be binding and conclusive for all purposes and upon all persons unless and except to the extent that the Board of Directors of the Company shall have previously directed that all or specified types of action by the Committee shall be subject to approval by the Board of Directors. IV. Eligibility The individuals eligible to receive awards under the Plan shall be such Employees as the Committee shall determine each year. V. Awards The Committee shall determine the awards to be made for any year subject to the following: (1) the award amounts payable with respect to any year to an Employee who for such year is the Chief Executive Officer of the Corporation or one of the Corporation's four other highest compensated officers (as determined in accordance with Section 162(m) of the Internal Revenue Code of 1986, as amended) shall not exceed 3% of the Award Fund, and, (2) the portion of the Award Fund remaining after the awards to the Employees in (1) above shall be available for awards to other Employees in such amounts as the Committee determines. In no event, however, shall the amount of an award payable to any Employee exceed the Employee's total compensation for the year, excluding only any award under the Plan. Awards may be in whole or in part (a) current and payable in cash ("Cash Award"), or (b) deferred and conditional and payable (i) in cash ("Contingent Cash Award") or (ii) in shares of the Corporation's Common Stock ("Contingent Stock Award"). The aggregate number of shares of the Corporation's Common Stock which may be issued under the Plan shall be 24,000,000 (plus the number of shares credited in respect of dividends as hereinafter provided) and all such shares shall be from Treasury Stock or from authorized and unissued shares as the Board of Directors shall from time to time determine. In the event of stock split, stock dividend or other relevant change in the Corporation's capitalization, the Committee shall, subject to the approval of the Board of Directors, appropriately adjust such maximum number of shares. Insofar as the Committee has not predetermined the manner of payment of awards, whether in terms of individuals or classifications on the bases of age, salary, amount of award or other criteria, the Committee may permit eligible Employees to indicate a preference, which shall not be binding on the Committee, within limits established by the Committee, that all or any portion of an award be a Cash Award, a Contingent Cash Award or a Contingent Stock Award. VI. Payment of Awards (1) Cash Awards The amount of each Cash Award shall be paid in cash as soon as practicable after the close of the calendar year for which the award is made. (2) Contingent Cash Awards The Company shall credit the amount of each Contingent Cash Award to the Employee's Contingent Award Account and shall, subject to the conditions of paragraph VI(4), pay the same out in equal installments on the five succeeding anniversaries of the date of the award. (3) Contingent Stock Awards (a) The amount of each Contingent Stock Award shall be used to determine the largest full number of shares of the Corporation's Common Stock which such amount would purchase at the average closing market price of such Common Stock on the Consolidated Transaction Reporting System for the last five business days, on which at least one sale of such Common Stock took place on such System, of the calendar year for which the award is made. The Company shall credit the Employee's Contingent Award Account as of the date of the award with the number of shares so determined. At no time after such credit and prior to the delivery of the shares so credited shall any of such shares be earmarked for his or her account, nor shall he or she have any of the rights of a stockholder with respect to such shares. Any excess of the Contingent Stock Award remaining after such computation of shares of stock shall be carried forward and treated as an addition to any future award to the Employee; provided, however, that any such excess remaining after termination of the Employee's employment shall be paid to him or her in cash at the time of the first delivery from his or her Contingent Award Account. As of December 31 of each year, the Corporation shall determine the amount of the dividends which would have been paid during such calendar year with respect to the number of shares credited in each Contingent Award Account at the record date for each such dividend payment had the shares so credited then been issued and outstanding. The Employee's Contingent Award Account shall be credited with the largest full number of shares of the Corporation's Common Stock purchasable with the above determined amount at the average closing market price of such Common Stock on the Consolidated Transaction Reporting System, for the last five business days, on which at least one sale of such Common Stock took place on such System, of the calendar year (such share credits in respect of dividends shall not be deemed awards under the Plan). The cash equivalent of any excess thereafter remaining shall be carried forward and treated as an addition to the next succeeding year's dividends on the shares credited to the Employee's Contingent Award Account; provided, however, that the cash equivalent of any such excess remaining after final delivery from the Employee's Contingent Award Account shall be paid to him or her in cash. In the event of stock split, stock dividend or other relevant change in the Corporation's capitalization, the Committee shall, subject to the approval of the Board of Directors, appropriately adjust the shares of stock theretofore credited to the Contingent Award Accounts. (b) The Company shall, subject to the conditions of paragraph VI(4), deliver to the Employee the shares of stock credited to his or her Contingent Award Account in approximately equal installments as soon as practicable after the first day of January of each of the five years following any termination of his or her employment, unless the Committee shall otherwise determine. (c) Notwithstanding any other provisions hereof, the Committee may in its absolute discretion provide, with respect to any Contingent Stock Award made to any participant or participants under the Plan, that in the event of any delivery of shares of Common Stock by the Company pursuant to such Contingent Stock Award, the number of such shares which the recipient thereof shall be entitled to receive and which shall be delivered by the Company shall be (i) the number of such shares which would have been delivered in the absence of this paragraph VI(3)(c), minus (ii) the number of whole shares of Common Stock necessary to satisfy the minimum federal, state and/or local income tax withholding obligations which are imposed on the Company by applicable law in respect of the delivery of such award (and which may be satisfied by the reduction effected hereby in the number of deliverable shares), it being understood that the value of the shares referred to in clause (ii) above shall be determined, for the purposes of satisfying such withholding obligations, on the basis of the average of the high and low per share prices for the Common Stock as reported on the Consolidated Transaction Reporting System on the date of authorization of delivery by the Committee, or on such other reasonable basis for determining fair market value as the Committee may from time to time adopt. Notwithstanding any term or provision of this paragraph VI(3)(c), in determining the total number of shares authorized for issuance under the Plan pursuant to paragraph V hereof and in calculating the limit set forth in paragraph V hereof on the number of shares which may be awarded to any individual Employee under the Plan, the reduction in the number of shares effected by this paragraph VI(3)(c) shall not be taken into account. (4) Conditions of Payment of Contingent Awards (a) In the event that the Employee is discharged for, or after any other termination of employment is found while employed by the Company to have engaged in, deliberate gross misconduct, as determined by the Company, no further payment or delivery shall thereafter be made in respect of his or her Contingent Cash or Stock Awards and all his or her rights with respect to his or her Contingent Cash or Stock Awards and all his or her rights with respect to his or her Contingent Award Account shall thereupon be forfeited. (b) In the event of termination of the Employee's employment prior to his or her retirement for reasons other than death or discharge for deliberate gross misconduct, as determined by the Company, any unpaid installments of his or her Contingent Cash Awards and any undelivered shares of stock from his or her Contingent Award Account shall, subject to the conditions set forth in paragraph (d) below, be paid or delivered to him or her at the dates and in the installments originally determined. (c) In the event of the Employee's death, any unpaid installments of his or her Contingent Cash Awards shall be paid and any undelivered shares of stock from his or her Contingent Award Account shall be paid or delivered at the dates and in the installments originally determined, unless the Committee shall otherwise determine, to or as directed by his or her legal representative, or legatee or such other person designated by an appropriate court as the person entitled to receive the same, provided that the Employee was employed by the Company at the time of his or her death or up to the date of his or her death had complied with the conditions set forth in paragraph (d) below. (d) No payment of a Contingent Cash Award or delivery from a Contingent Award Account shall be made to any Employee after termination of employment unless he or she shall have to the date fixed for such payment or delivery (i) refrained from becoming or serving as an officer, director or employee of any individual, partnership or corporation, or the the owner of a business, or a member of a partnership which conducts a business in competition with the Company or renders a service (including, without limitations, advertising agencies and business consultants) to competitors with any portion of the business of the Company, (ii) made himself or herself available, if so requested by the Company, at reasonable times and upon a reasonable basis to consult with, supply information to, and otherwise cooperate with, the Company and (iii) refrained from engaging in deliberate action which, as determined by the Committee, causes substantial harm to the interests of the Company. If these conditions are not fulfilled, no further payment or delivery shall thereafter be made with respect to the Employee's Contingent Cash or Stock Awards and all his or her rights with respect to his or her Contingent Award Account shall thereupon be forfeited. VII. Limitations No Employee, whether or not deemed eligible or offered an opportunity to indicate a preference under the Plan, or other person shall have any claim or right (legal, equitable or other) to be granted an award under the Plan, and no Director, Officer, Employee of the Company or any other person shall have the authority to enter into any agreement with any person for the making or payment of an award or to make any representation or warranty with respect thereto. No Employee to whom a Contingent Award has been made shall have any rights to his or her Contingent Award Account other than to receive the Contingent Award at the time and in the form determined by the Committee, subject to the fulfillment of the conditions prescribed herein, which right may not be assigned, transferred or pledged during his or her lifetime. Neither the action of the Corporation in establishing the Plan nor any action taken by it or by the Committee under the provisions hereof, nor any provision of the Plan, shall be construed as giving to any Employee the right to be retained in the employ of the Company. VIII. Amendment, Suspension or Termination of the Plan in Whole or in Part The Board of Directors may discontinue the Plan at any time and may from time to time amend the terms of the Plan; provided, however, that no such discontinuance or amendment shall adversely affect any right or obligation with respect to any award theretofore made, and no such amendment shall, without the approval of stockholders, operate so as to increase the annual amount of the Award Fund or increase the aggregate number of shares of the Corporation's Common Stock that may be issued under the Plan. IX. Construction The Plan shall be governed by and construed in accordance with the laws of the State of New York. EX-10.21 6 Exhibit 10.21 WHEREAS, Section 9 of the American Home Products Corporation (the "Company") 1990 Stock Incentive Plan (the "1990 Plan") authorizes the Board of Directors to amend the 1990 Plan and the Compensation and Benefits Committee recommends that certain amendments as described below be made to the 1990 Plan; NOW, THEREFORE, Section 6 of the 1990 Plan is hereby amended as follows: 1. Section 6(c)(ii) of the 1990 Plan is deleted in its entirety, with such Section to be reserved for future amendment. 2. Section 6(c)(iii) of the 1990 Plan is hereby amended by deleting therefrom the language [surrounded by brackets] as follows: (iii) Upon exercise of Stock Appreciation Rights, the holder thereof shall be entitled to elect to receive therefor payment in the form of shares of Common Stock (rounded down to the next whole number so no fractional shares are issued), cash or any combination thereof in an amount equal in value to the difference between the Option Price per share and the fair market value per share of Common Stock on the date of exercise multiplied by the number of shares in respect of which the Stock Appreciation Rights shall have been exercised, subject to any limitation in such amount which the Committee may in its discretion impose[at the time of grant of the Stock Appreciation Rights. Such election as to the form of payment shall be subject to the consent of the Committee which consent or disapproval may be given at any time after the election to which it relates.] The fair market value of Common Stock shall be deemed to be the mean between the highest and lowest sale prices of the Common Stock on the Consolidated Transaction Reporting System on the date the Stock Appreciation Right is exercised or if no transaction on the Consolidated Transaction Reporting System occurred on such date, then on the last preceding day on which a transaction did take place. 3. Section 6(c)(iv) of the 1990 Plan is hereby amended by deleting therefrom the language [surrounded by brackets] and adding text *surrounded by stars* as follows: (iv) Any exercise by an officer or director of Stock Appreciation Rights, as well as any election by such officer or director as to the form of payment to such officer or director (Common Stock, cash or any combination thereof), [which election is subject to the consent of the Committee in its sole discretion as provided in subparagraph (iii) hereof,] shall be made during the ten-day period beginning on the third business day following the release for publication of any quarterly or annual statement of sales and earnings by the Company and ending on the twelfth business day following the date of such release *("window period")*. For purposes hereof officer shall mean only officers who are subject to Section 16(b) of the Securities Exchange Act of 1934, as amended. In the event that a director or officer of the Company subject to Section 16(b) of the Securities Exchange Act of 1934 exercises a Stock Appreciation Right for cash or stock pursuant to this Section 6 during a "window period," [as provided in Rule 16b-3 under the Securities Exchange Act of 1934,] the day on which such right is effectively exercised shall be that day, if any, during such "window period" which is designated by the Committee in its discretion for all such exercises by such individuals during such period. If no such day is designated, the day of effective exercise shall be determined in accordance with normal administrative practices of the Plan. EX-10.24 7 Exhibit 10.24 WHEREAS, Section 9 of the American Home Products Corporation (the "Company") 1993 Stock Incentive Plan (the "1993 Plan") authorizes the Board of Directors to amend the 1993 Plan and the Compensation and Benefits Committee recommends that certain amendments as described below be made to the 1993 Plan; NOW, THEREFORE, Section 6 of the 1993 Plan is hereby amended as follows: 1. Section 6(c)(ii) of the 1993 Plan is deleted in its entirety, with such Section to be reserved for future amendment. 2. Section 6(c)(iii) of the 1993 Plan is hereby amended by deleting therefrom the language [surrounded by brackets] as follows: (iii) Upon exercise of Stock Appreciation Rights, the holder thereof shall be entitled to elect to receive therefor payment in the form of shares of Common Stock (rounded down to the next whole number so no fractional shares are issued), cash or any combination thereof in an amount equal in value to the difference between the Option Price per share and the fair market value per share of Common Stock on the date of exercise multiplied by the number of shares in respect of which the Stock Appreciation Rights shall have been exercised, subject to any limitation on such amount which the Committee may in its discretion impose [at the time of grant of the Stock Appreciation Rights. Such election as to the form of payment shall be subject to the consent of the Committee which consent or disapproval may be given at any time after the election to which it relates.] The fair market value of Common Stock shall be deemed to be the mean between the highest and lowest sale prices of the Common Stock on the Consolidated Transaction Reporting System on the date the Stock Appreciation Right is exercised or if no transaction on the Consolidated Transaction Reporting System occurred on such date, then on the last preceding day on which a transaction did take place. 3. Section 6(c)(iv) of the 1993 Plan is hereby amended by deleting therefrom the language [surrounded by brackets] and adding text *surrounded by stars* as follows: (iv) Any exercise by an officer or director of Stock Appreciation Rights, as well as any election by such officer or director as to the form of payment to such officer or director (Common Stock, cash or any combination thereof), [which election is subject to the consent of the Committee in its sole discretion as provided in subparagraph (iii) hereof,] shall be made during the ten-day period beginning on the third business day following the release for publication of any quarterly or annual statement of sales and earnings by the Company and ending on the twelfth business day following the date of such release *("window period")*. For purposes hereof officer shall mean only officers who are subject to Section 16(b) of the Securities Exchange Act of 1934, as amended. In the event that a director or officer of the Company subject to Section 16(b) of the Securities Exchange Act of 1934 exercises a Stock Appreciation Right for cash or stock pursuant to this Section 6 during a "window period," [as provided in Rule 16b-3 under the Securities Exchange Act of 1934], the day on which such right is effectively exercised shall be that day, if any, during such "window period" which is designated by the Committee in its discretion for all such exercises by such individuals during such period. If no such day is designated, the day of effective exercise shall be determined in accordance with normal administrative practices of the Plan. EX-10.26 8 Exhibit 10.26 WHEREAS, Section 10 of the American Home Products Corporation (the "Company") 1996 Stock Incentive Plan (the "1996 Plan") authorizes the Board of Directors to amend the 1996 Plan and the Compensation and Benefits Committee recommends that certain amendments as described below be made to the 1996 Plan; NOW, THEREFORE, Section 6 of the 1996 Plan is hereby amended as follows: 1. Section 6(c)(ii) of the 1996 Plan is deleted in its entirety, with such Section to be reserved for future amendment. 2. Section 6(c)(iii) of the 1996 Plan is hereby amended by deleting therefrom the language [surrounded by brackets] as follows: (iii) Upon exercise of Stock Appreciation Rights, the holder thereof shall be entitled to elect to receive therefor payment in the form of shares of the Company's Common Stock (rounded down to the next whole number so no fractional shares are issued), cash or any combination thereof in an amount equal in value to the difference between the Option Price per share and the fair market value per share of Common Stock on the date of exercise multiplied by the number of shares in respect of which the Stock Appreciation Rights shall have been exercised, subject to any limitation on such amount which the Committee may in its discretion impose [at the time of grant of the Stock Appreciation Rights. Such election as to the form of payment shall be subject to the consent of the Committee which consent or disapproval may be given at any time after the election to which it relates.] The fair market value of Common Stock shall be deemed to be the mean between the highest and lowest sale prices of the Common Stock on the Consolidated Transaction Reporting System on the date the Stock Appreciation Right is exercised or if no transaction on the Consolidated Transaction Reporting System occurred on such date, then on the last preceding day on which a transaction did take place. 3. Section 6(c)(iv) of the 1996 Plan is hereby amended by deleting therefrom the language [surrounded by brackets] and adding text *surrounded by stars* as follows: (iv) Any exercise of Stock Appreciation Rights by an officer or director subject to Section 16(b) of the Exchange Act, as well as any election by such officer or director as to the form of payment of Stock Appreciation Rights (Common Stock, cash or any combination thereof), [which election is subject to the consent of the Committee in its sole discretion as provided in subparagraph (iii) hereof,] shall be made during the ten-day period beginning on the third business day following the release for publication of any quarterly or annual statement of sales and earnings by the Company and ending on the twelfth business day following the date of such release *("window period")*. In the event that such a director or officer exercises a Stock Appreciation Right for cash or stock pursuant to this Section 6 during a "window period," [as provided in Rule 16b-3 under the Exchange Act], the day on which such right is effectively exercised shall be that day, if any, during such "window period" which is designated by the Committee in its discretion for all such exercises by such individuals during such period. If no such day is designated, the day of effective exercise shall be determined in accordance with normal administrative practices of the Plan. [This clause (iv) shall cease to apply at the discretion of the Committee if any amendment or Securities and Exchange Commission interpretation of such Rule 16b-3 makes the application of this clause (iv) unnecessary to exempt the grant and/or exercise of Stock Appreciation Rights from the application of Section 16(b) of the Exchange Act.] EX-10.27 9 Exhibit 10.27 AMERICAN HOME PRODUCTS CORPORATION STOCK OPTION AGREEMENT UNDER 19__ STOCK INCENTIVE PLAN DATED OPTION PRICE INCENTIVE STOCK OPTION SHARES [Name/Address] NON-QUALIFIED STOCK OPTION SHARES 1. Under the terms and conditions of this Agreement and of the American Home Products Corporation (the "Company") stock incentive plan referred to above (the "Plan"), a copy of which is attached hereto and incorporated herein by reference, the Company hereby grants to the Optionee an option or options (together, the "Option") to purchase the number of shares of the Company's common stock as specified above ("Option Shares") at the option price also above specified. Capitalized terms not otherwise defined herein have the meanings assigned to them in the Plan. 2. This Option may be exercised, in whole or in part from time to time in any whole number of Option Shares, upon and after the earlier of (i) the date that is one year from the date of grant of this Option, or (ii) the date of the death, Disability or Retirement (each capitalized term as defined in the Company's [Year] Stock Incentive Plan (the "[Year] Plan")) of Optionee, subject to the provisions of Section 5 of the Plan which generally requires that at the time of exercise or the date of termination of Optionee's employment with the Company and its subsidiaries, the Optionee is or was employed by the Company or one or more of its subsidiaries and has been continuously employed by the Company or one or more of its subsidiaries for at least two years and since the date of grant. Once this Option becomes exercisable, it shall remain exercisable until its expiration as described in paragraph 3 below. To the extent Option Shares have been purchased pursuant to the exercise of this Option, such shares shall no longer be available for purchase hereunder. If this Option is granted under the [Year] Plan, the date after which this Option may be exercised will be accelerated upon a Change in Control of the Company (as defined in the Plan) and upon such occurrence may be cashed out at the discretion of the Compensation and Benefits Committee on the terms described in Section 9 of the [Year] Plan. 3. This Option shall expire upon the date that is ten years from the date of grant or earlier as provided in Section 5 of the Plan which provides, among other things, that options shall expire upon the first to occur of the following: (iii) the date that is three years from the date of Optionee's death, Disability or Retirement, (iv) the date that is three months from the date of the termination of Optionee's employment with the Company and its subsidiaries by the Company or any of its subsidiaries for any reason other than death, Disability, Retirement or deliberate gross misconduct (as determined by the Compensation and Benefits Committee), or (v) immediately upon the date of (A) the termination of Optionee's employment with the Company and its subsidiaries by the Company or any of its subsidiaries because of Optionee's deliberate gross misconduct (as determined by the Compensation and Benefits Committee), (B) Optionee's voluntary termination of employment with the Company and its subsidiaries, or (C) Optionee's violation of (x) the noncompetition, or cooperation provisions of Section 5(g) of the Plan or (y) the undertaking not to deliberately cause substantial harm to the Company as set forth in Section 5(g) of the Plan. 4. Any Incentive Stock Option granted hereby shall become exercisable for the first time in the aggregate amount of no more than $100,000 (fair market value at time of grant) during any calendar year. In addition, any such incentive stock option exercised after three months after separation from service to the Company will be treated as a non-qualified stock option under U.S. federal tax provisions, if applicable. 5. This Option may be exercised by sending the Treasurer of the Company an option exercise notice indicating the number of Option Shares for which the Option is to be exercised at that time and the form in which the certificates are to be registered for Option Shares purchased (in the name of the Optionee or in his or her name and that of another person(s) as joint tenants with the right of survivorship). This notice shall be accompanied by payment of the Option Price for the Option Shares being purchased in the form of (vi) a personal or bank check in U.S. Dollars payable to American Home Products Corporation and drawn on or payable at a United States bank and/or (vii) shares of the Company's common stock issued in the Optionee's name and duly assigned to the Company or (viii) by any other form of consideration which has been approved by the Compensation and Benefits Committee, as and to the extent provided and permitted by Section 5(d) of the Plan. Notwithstanding anything to the contrary herein, the Company or its subsidiaries, as appropriate, shall have the right to deduct from the number of Option Shares to be delivered upon exercise such number of Option Shares as may be necessary to satisfy all federal, state or local taxes or other deductions legally required to be withheld or in the alternative may require the Optionee to deliver to the Company or a subsidiary an amount of cash or number of shares of common stock of the Company to satisfy such withholding. 6. This Agreement and this Option as well as the Company's obligation to sell and deliver Option Shares covered by this Option is subject to all federal, state and other laws, rules and regulations of the United States and/or of the country wherein the Optionee resides or is employed. Compliance with any recording, protocolization or registration requirements and payment of any fees or taxes applicable to this Agreement or the transactions it contemplates are the exclusive responsibility of the Optionee. 7. This Option is not transferable or assignable other than by will or by the laws of descent and distribution and may be exercised during the Optionee's lifetime only by him or her. After the Optionee's death the Option may be exercised only by the Optionee's legal representative or legatee or such other person designated by an appropriate court as the person entitled to make such exercise. The Option may be exercised after the Optionee's death only to the extent that he or she was entitled to exercise it at the time of his or her death. 8. In the event that this Agreement also contains a grant of a Stock Appreciation Right (an "SAR") in connection with the Option, the terms of the SAR shall be governed by the provisions of Section 6 of the Plan. 9. Subject to the express provisions of the Plan, this Agreement and the Plan are to be interpreted and administered by the Compensation and Benefits Committee, whose determination will be final. 10. This Agreement shall be governed by the laws of the State of Delaware and in accordance with such federal law as may be applicable. AMERICAN HOME PRODUCT CORPORATION Chairman of the Board Accepted and agreed to: Optionee's Signature Optionee's Social Security Number EX-10.30 10 Exhibit 10.30 AMENDMENT TO THE AMERICAN HOME PRODUCTS CORPORATION SPECIAL STOCK OPTION AGREEMENT The Special Stock Option Agreement, dated __________, 199_, by and between American Home Products Corporation (the "Corporation") and _____________ (the "Agreement") is hereby amended by this Amendment, dated _________, 199_, by adding a new paragraph 9 which states as follows: 9. Notwithstanding the holding period set forth in paragraph 2 of this Agreement, effective on the date that is one year after the date of grant of these options, in the event of a Change of Control (as defined below) (i) these options shall become immediately exercisable options with respect to 100 percent of the Option Shares; and (ii) the Compensation and Benefits Committee may, in its discretion and upon at least 10 days advance notice to the optionee, cancel any options and pay to the optionee in cash, the value thereof based upon the highest price per share of the Corporation's common stock received or to be received by other stockholders of the Corporation in connection with the Change of Control. "Change in Control" shall, unless the Board of Directors of the Corporation otherwise directs by resolution adopted prior thereto, be deemed to occur if (i) any "person" (as that term is used in Sections 13 and 14(d)(2) of the Exchange Act) other than a Permitted Holder (as defined below) is or becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 50% or more of either the outstanding shares of common stock of the Corporation or the combined voting power of the Corporation's then outstanding voting securities entitled to vote generally, (ii) during any period of two consecutive years, individuals who constitute the Board of Directors of the Corporation at the beginning of such period cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Corporation's stockholders of each new director was approved by a vote of at least three-quarters of the directors then still in office who were directors at the beginning of the period or (iii) the Corporation undergoes a liquidation or dissolution or a sale of all or substantially all of the assets of the Corporation. No merger, consolidation or corporate reorganization in which the owners of the combined voting power of the Corporation's then outstanding voting securities entitled to vote generally prior to said combination, own 50% or more of the resulting entity's outstanding voting securities shall, by itself, be considered a Change in Control. As used herein, "Permitted Holder" means (i) the Corporation, (ii) any corporation, partnership, trust or other entity controlled by the Corporation and (iii) any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any such controlled entity. Accepted and agreed to: AMERICAN HOME PRODUCTS CORPORATION _________________ ___________________________ Optionee's Signature Chairman of the Board EX-10.31 11 Exhibit 10.31 AMERICAN HOME PRODUCTS CORPORATION RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT UNDER THE [Year] STOCK INCENTIVE PLAN DATE: [Year] NUMBER OF SHARES SUBJECT TO TARGET AWARD: [ ] ______________________________ [Name/Address] Under the terms and conditions of this Agreement and of the Company's [Year] Stock Incentive Plan (the "Plan"), a copy of which has been delivered to you and is made a part hereof, the Company hereby awards to you units (the "Units") representing shares of the Company's Common Stock (the "Common Stock") subject to the restrictions set forth in this Agreement in the amount set forth above (the "Target Award"). Upon the satisfaction by the Company of certain performance criteria as described in Paragraph 3 of this Agreement, the Units will be converted into shares of the Company's Common Stock entitling the holder to all of the rights of a stockholder as described herein but subject to the restrictions set forth in this Agreement (the "Restricted Stock"). Except as provided herein, the terms used in this Agreement shall have the same meanings as in the Plan. 1. Rights as Stockholders. During the period from the date of this Agreement through the Conversion Date (as defined herein), no shares of the Company's Common Stock represented by the Units will be earmarked for you or your account nor shall you have any of the rights of a stockholder with respect to such shares. Upon issuance of the Restricted Stock as of the Conversion Date, you will be the owner of record of the shares of Common Stock represented by the Restricted Stock and shall be entitled to all of the rights of a stockholder of the Company, including the right to vote and the right to receive dividends, subject to the restrictions stated in this Agreement and referred to in the legend described in Paragraph 7 below. If you receive any additional shares by reason of being the holder of Restricted Stock under this Agreement, all the additional shares shall be subject to the provisions of this Agreement and all certificates evidencing ownership of the additional shares shall bear the legend. 2. Restricted Period. During the period from the date of this Agreement through the date which is three years after such date (the "Restricted Period"), you may not sell, transfer, assign, pledge, or otherwise encumber or dispose of any Units or Restricted Stock granted hereunder. 3. Conversion to Restricted Stock. (a) At meetings of the Committee to be held within 60 days after the end of each of the current year and the two immediately succeeding years or at such other time or times as the Committee in its discretion deems appropriate, the Committee shall compare the EPS (as defined below) for such year with the EPS Target (as defined below) for such year (the date on which each such determination is made being referred to herein as a "Conversion Date"). If, on the date of such meeting, the Committee determines that, with respect to the preceding year: (i) EPS is less than 90% of the EPS Target, then all rights with respect to one-third of the Target Award (the "Annual Target Amount") shall thereupon be forfeited; (ii) EPS is greater than or equal to 90% of the EPS Target and less than or equal to 95% of the EPS Target, then Units representing 75% of the Annual Target Amount shall be converted into Restricted Stock and all rights with respect to the remaining portion of such Annual Target Amount shall thereupon be forfeited; (iii) EPS is greater than 95% of the EPS Target and less than or equal to 105% of the EPS Target, then Units representing the entire Annual Target Amount shall be converted into Restricted Stock; and (iv) EPS is greater than 105% of the EPS Target, then Units representing the entire Annual Target Amount shall be converted into Restricted Stock and you shall be entitled to receive an additional grant of Restricted Stock representing 25% of the Annual Target Amount (a "Bonus Award"); such additional grant to be made by the Committee at such meeting. (b) Notwithstanding anything to the contrary contained in this Agreement, Units shall be converted into Restricted Stock in whole numbers of shares only and, if necessary, (i) the Annual Target Amount shall be rounded up or down (A) to the nearest whole number for the first two years and (B) for the third year to equal, together with the Annual Target Amounts for the first two years, the Target Award; and (ii) the calculations based upon such amounts in subparagraphs 3(a)(ii) and 3(a)(iv) above shall be rounded up or down to the nearest whole number. (c) As used in this Agreement, the term: (i) "EPS" for any year means the earnings or net income per share of common stock of the Company for such year, adjusted to exclude the effect of extraordinary or unusual items of income or expense, all as determined in good faith by the Committee acting in its sole discretion. (ii) "EPS Target" shall be $2.88 for [Year] and, for [Next Year] and [Following Year], shall be the amount established by the Committee at a meeting to be held no later than March 1 of each such year; provided, however, that if for any reason the Committee shall determine that the EPS Target is no longer a practicable or appropriate measure of financial performance, the Committee may take action to substitute another financial measure as it deems appropriate under the circumstances. 4. Restricted Stock Trust. (a) Subject to Paragraph 4(b) below, you are eligible to make a one-time irrevocable election to cause the Company to deposit as of each Conversion Date the shares of Restricted Stock into which Units shall be converted on such date, together with a stock power to be executed by you, to an account in your name in the Restricted Stock Trust (as defined below) by completing the form set forth on Schedule A attached hereto. Subject to Paragraph 4(b), below, if you do not make such election, such shares shall be delivered to you as provided in Paragraph 5(a)(i) of this Agreement. (b) Notwithstanding anything to the contrary contained in this Agreement, if you are or, in the judgment of the Committee, are expected to be a Named Executive Officer with respect to any year in which a Conversion Date occurs, then you will be deemed to have made the election under Paragraph 4(a) above to have the Restricted Stock into which Units shall be converted on such date and thereafter deposited into the Restricted Stock Trust. (c) For purposes of this Agreement: (i) "Named Executive Officer" shall mean the Chief Executive Officer of the Company or any of the four highest compensated officers (other than the Chief Executive Officer of the Company) whose total compensation payable is required to be reported to shareholders under the Securities Exchange Act of 1934, as amended; and (ii) "Restricted Stock Trust" means the trust fund established or to be established by a trust agreement (the "Trust Agreement") to accommodate the deferral of delivery of shares of Common Stock represented by Units and/or Restricted Stock (and dividends paid thereon) until your termination of employment for any reason or as otherwise provided in the Trust Agreement, such trust fund to be subject to the claims of the Company's general creditors under federal and state law in the event of insolvency of the Company as described in the Trust Agreement. 5. Delivery of Shares of Common Stock. (a) Subject to Paragraphs 4 and 9 of this Agreement, as soon as practicable after the Restricted Period (or six months after the last Conversion Date with respect to a Bonus Award made on the final Conversion Date), all shares of Restricted Stock granted hereunder shall be cancelled and replaced with certificates representing Common Stock free of any restrictive legend other than as may be required by applicable state or federal securities law, such certificates to be either (i) delivered to you promptly or (ii) if you have made or are deemed to have made the election under Paragraph 4 above, deposited on your behalf in the Restricted Stock Trust, in which case delivery of such shares shall be deferred as provided in the Trust Agreement until the first business day of the calendar year following your termination of employment or as otherwise provided in the Trust Agreement. (b) Notwithstanding any other provisions hereof, the number of shares of Common Stock which shall be delivered to you pursuant to Paragraph 5(a) either directly or from the Restricted Stock Trust shall be (i) the number of such shares which would have been delivered in the absence of this Paragraph 5(b) minus (ii) the number of whole shares of Common Stock necessary to satisfy the minimum federal, state and/or local income tax withholding obligations which are imposed on the Company by applicable law in respect of the delivery of such award (and which may be satisfied by the reduction effected hereby in the number of deliverable shares), it being understood that the value of the shares referred to in clause (ii) above shall be determined, for the purposes of satisfying such withholding obligations, on the basis of the average of the high and low per share prices for the Common Stock as reported on the Consolidated Transaction Reporting System on the designated date of delivery, or on such other reasonable basis for determining fair market value as the Committee may from time to time adopt. Any other withholding obligations (e.g. Social Security and Medicare) with respect to such award will be satisfied by separate arrangements between the Company and you but will not in any event involve a reduction in the number of shares that you are to receive. 6. Termination of Employment. (a) Subject to Section 7(f) of the Plan, in the event of your termination of employment during the Restricted Period for any reason other than death, disability or retirement, you shall forfeit all rights to all Units and Restricted Stock granted hereunder and you agree (i) to assign, transfer, and deliver the Restricted Stock to the Company and (ii) that you shall cease to be a shareholder of the Company with respect to such shares, provided, the Committee may provide for a partial or complete exception to this requirement as it deems equitable in its sole discretion. (b) In the event that your employment is terminated due to death, disability or retirement, vesting of all shares of Restricted Stock covered by the Target Award and any related Bonus Award and delivery of the shares of Common Stock of the Company represented thereby will be made to you or your designated beneficiary or your legal representative, legatee or such other person designated by an appropriate court as entitled to receive the same, as the case may be, on the terms and, subject to the conditions of this Agreement, including Paragraph 3 above. 7. Legend on Certificates. Each certificate evidencing ownership of Restricted Stock issued during the Restricted Period shall bear the following legend: "These shares have been issued or transferred subject to a Restricted Stock Performance Award and are subject to substantial restrictions, including a prohibition against transfer and a provision requiring transfer of these shares to the Company without payment in the event of termination of the employment of the registered owner under certain circumstances all as more particularly set forth in a Restricted Stock Performance Award Agreement dated [Date], a copy of which is on file with the Company." 8. Miscellaneous. This Agreement may not be amended except in writing and neither the existence of the Plan and this Agreement nor the Target Award granted hereby shall create any right to continue to be employed by the Corporation or its subsidiaries and your employment will continue to be at will and terminable at will by the Corporation. In the event of a conflict between this Agreement and the Plan, the Plan shall govern. 9. Compliance With Laws. (a) This Agreement shall be governed by the laws of the state of Delaware and any applicable laws of the United States. Notwithstanding anything herein to the contrary, the Corporation shall not be obligated to cause to be delivered any Restricted Stock or shares of Common Stock of the Company represented thereby pursuant to this Agreement unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws and regulations of governmental authority. The Corporation shall in no event be obliged to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law or regulation. (b) If you are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), transactions under the Plan and this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan, this Agreement or action by the Committee involving you is deemed not to comply with an applicable condition of Rule 16b-3, such provision or action shall be deemed null and void as to you, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan and/or this Agreement does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements or the price and amount of awards as applicable) shall be deemed automatically to be incorporated by reference into the Plan and/or this Agreement insofar as you are concerned, with such incorporation to be deemed effective as of the effective date of such Rule 16b-3 provision. In addition, the Committee in its discretion may cause the Company to retain custody of the certificates representing the Common Stock to be delivered under Paragraph 5 above so long as necessary or appropriate to ensure that any minimum holding period under Rule 16b-3 is satisfied. AMERICAN HOME PRODUCTS CORPORATION By: ______________________________ Corporate Treasurer Accepted and agreed to: ____________________________________ _______________________ Name (Please Print) Social Security Number ____________________________________ _______________________ Signature Date of Birth SCHEDULE A ELECTION FORM (To Be Completed in Conjunction with Your Restricted Stock Performance Award Agreement) I, [PRINT NAME] , hereby make an election to defer distribution of all shares of Restricted Stock and to cause the Company to deposit such shares to an account in my name in the Restricted Stock Trust (with any dividends thereon to be reinvested under the AHPC Master Investment Plan) together with a stock power to be executed by me. See Note Below This election shall be irrevocable upon execution of the Agreement. _________________________________ Signature of Executive Dated: ______________________________________________________ Witnessed: __________________________________________________ NOTE: 1. If you are or are expected to be a Named Executive Officer with respect to any year in which a Conversion Date occurs, you will be deemed to have elected deferred distribution hereunder. Beneficiary Designation In the event of my death, I designate the following beneficiary (ies) to receive any shares of the Company's Common Stock to be distributed to me or which have been deferred on my behalf to the Restricted Stock Trust under this Agreement together with any dividends thereon. __________________________________________________ Beneficiary (ies) __________________________________________________ Contingent Beneficiary (ies) _____________________________ Signature of Executive Dated: ______________________________________________________ Witnessed: __________________________________________________ EX-10.32 12 Exhibit 10.32 AMERICAN HOME PRODUCTS CORPORATION RESTRICTED STOCK PERFORMANCE AWARD AGREEMENT UNDER THE [Year]STOCK INCENTIVE PLAN DATE: [Date] NUMBER OF SHARES SUBJECT TO TARGET AWARD: [ ] ______________________________ [Name/Address] Under the terms and conditions of this Agreement and of the Company's [Year] Stock Incentive Plan (the "Plan"), a copy of which has been delivered to you and is made a part hereof, the Company hereby awards to you units (the "Units") representing shares of the Company's Common Stock (the "Common Stock") subject to the restrictions set forth in this Agreement in the amount set forth above (the "Target Award"). Upon the satisfaction by the Company of certain performance criteria as described in Paragraph 3 of this Agreement, the Units will be converted into shares of the Company's Common Stock entitling the holder to all of the rights of a stockholder as described herein but subject to the restrictions set forth in this Agreement (the "Restricted Stock"). Except as provided herein, the terms used in this Agreement shall have the same meanings as in the Plan. 1. Rights as Stockholders. During the period from the date of this Agreement through the Conversion Date (as defined herein), no shares of the Company's Common Stock represented by the Units will be earmarked for you or your account nor shall you have any of the rights of a stockholder with respect to such shares. Upon issuance of the Restricted Stock as of the Conversion Date, you will be the owner of record of the shares of Common Stock represented by the Restricted Stock and shall be entitled to all of the rights of a stockholder of the Company, including the right to vote and the right to receive dividends, subject to the restrictions stated in this Agreement and referred to in the legend described in Paragraph 7 below. If you receive any additional shares by reason of being the holder of Restricted Stock under this Agreement, all the additional shares shall be subject to the provisions of this Agreement and all certificates evidencing ownership of the additional shares shall bear the legend. 2. Restricted Period. During the period from the date of this Agreement through the date which is three years after such date (the "Restricted Period"), you may not sell, transfer, assign, pledge, or otherwise encumber or dispose of any Units or Restricted Stock granted hereunder. 3. Conversion to Restricted Stock. (a) At a meeting of the Committee to be held within 60 days after the end of [second year] or at such other time or times as the Committee in its discretion deems appropriate, the Committee shall compare the EPS (as defined below) with the EPS Target (as defined below). If, on the date of such meeting (the "Conversion Date"), the Committee determines that: (i) EPS is less than 90% of the EPS Target, then all rights with respect to the Target Award shall thereupon be forfeited; (ii) EPS is greater than or equal to 90% of the EPS Target and less than or equal to 95% of the EPS Target, then Units representing 75% of the Target Award shall be converted into Restricted Stock and all rights with respect to the remaining portion of such Target Award shall thereupon be forfeited; (iii) EPS is greater than 95% of the EPS Target and less than or equal to 105% of the EPS Target, then Units representing the entire Target Award shall be converted into Restricted Stock; and (iv) EPS is greater than 105% of the EPS Target, then Units representing the entire Target Award shall be converted into Restricted Stock and you shall be entitled to receive an additional grant of Restricted Stock representing 25% of the Target Award (a "Bonus Award"); such additional grant to be made by the Committee at such meeting. (b) Notwithstanding anything to the contrary contained in this Agreement, Units shall be converted into Restricted Stock in whole numbers of shares only and, if necessary, the calculations based upon such amounts in subparagraphs 3(a)(ii) and 3(a)(iv) above shall be rounded up or down to the nearest whole number. (c) As used in this Agreement, the term: (i) "EPS" means the earnings or net income per share of common stock of the Company for 1998, adjusted to exclude the effect of extraordinary or unusual items of income or expense, all as determined in good faith by the Committee acting in its sole discretion. (ii) "EPS Target" shall be the amount established by the Committee at a meeting to be held no later than March 1, 1998; provided, however, that if for any reason the Committee shall determine that the EPS Target is no longer a practicable or appropriate measure of financial performance, the Committee may take action to substitute another financial measure as it deems appropriate under the circumstances. 4. Restricted Stock Trust. (a) Subject to Paragraph 4(b) below, you are eligible to make a one-time irrevocable election to cause the Company to deposit as of the Conversion Date the shares of Restricted Stock, issuable hereunder, together with a stock power to be executed by you, to an account in your name in the Restricted Stock Trust (as defined below) by completing the form set forth on Schedule A attached hereto. Subject to Paragraph 4(b), below, if you do not make such election, such shares shall be delivered to you as provided in Paragraph 5(a)(i) of this Agreement. (b) Notwithstanding anything to the contrary contained in this Agreement, if you are or, in the judgment of the Committee, are expected to be a Named Executive Officer with respect to the year in which the Conversion Date occurs, then you will be deemed to have made the election under Paragraph 4(a) above to have the Restricted Stock issuable hereunder deposited into the Restricted Stock Trust. (c) For purposes of this Agreement: (i) "Named Executive Officer" shall mean the Chief Executive Officer of the Company or any of the four highest compensated officers (other than the Chief Executive Officer of the Company) whose total compensation payable is required to be reported to shareholders under the Securities Exchange Act of 1934, as amended; and (ii) "Restricted Stock Trust" means the trust fund established or to be established by a trust agreement (the "Trust Agreement") to accommodate the deferral of delivery of shares of Common Stock represented by Units and/or Restricted Stock (and dividends paid thereon) until your termination of employment for any reason or as otherwise provided in the Trust Agreement, such trust fund to be subject to the claims of the Company's general creditors under federal and state law in the event of insolvency of the Company as described in the Trust Agreement. 5. Delivery of Shares of Common Stock. (a) Subject to Paragraphs 4 and 9 of this Agreement, as soon as practicable after the Restricted Period (or six months after the Conversion Date with respect to a Bonus Award) all shares of Restricted Stock granted hereunder shall be cancelled and replaced with certificates representing Common Stock free of any restrictive legend other than as may be required by applicable state or federal securities law, such certificates to be either (i) delivered to you promptly or (ii) if you have made or are deemed to have made the election under Paragraph 4 above, deposited on your behalf in the Restricted Stock Trust, in which case delivery of such shares shall be deferred as provided in the Trust Agreement until the first business day of the calendar year following your termination of employment or as otherwise provided in the Trust Agreement. (b) Notwithstanding any other provisions hereof, the number of shares of Common Stock which shall be delivered to you pursuant to Paragraph 5(a) either directly or from the Restricted Stock Trust shall be (i) the number of such shares which would have been delivered in the absence of this Paragraph 5(b) minus (ii) the number of whole shares of Common Stock necessary to satisfy the minimum federal, state and/or local income tax withholding obligations which are imposed on the Company by applicable law in respect of the delivery of such award (and which may be satisfied by the reduction effected hereby in the number of deliverable shares), it being understood that the value of the shares referred to in clause (ii) above shall be determined, for the purposes of satisfying such withholding obligations, on the basis of the average of the high and low per share prices for the Common Stock as reported on the Consolidated Transaction Reporting System on the designated date of delivery, or on such other reasonable basis for determining fair market value as the Committee may from time to time adopt. Any other withholding obligations (e.g. Social Security and Medicare) with respect to such award will be satisfied by separate arrangements between the Company and you but will not in any event involve a reduction in the number of shares that you are to receive. 6. Termination of Employment. (a) Subject to Section 7(f) of the Plan, in the event of your termination of employment during the Restricted Period for any reason other than death, disability or retirement, you shall forfeit all rights to all Units and Restricted Stock granted hereunder and you agree (i) to assign, transfer, and deliver the Restricted Stock to the Company and (ii) that you shall cease to be a shareholder of the Company with respect to such shares, provided, the Committee may provide for a partial or complete exception to this requirement as it deems equitable in its sole discretion. (b) In the event that your employment is terminated due to death, disability or retirement, vesting of all shares of Restricted Stock covered by the Target Award and any related Bonus Award and delivery of the shares of Common Stock of the Company represented thereby will be made to you or your designated beneficiary or your legal representative, legatee or such other person designated by an appropriate court as entitled to receive the same, as the case may be, on the terms and, subject to the conditions of this Agreement, including Paragraph 3 above. 7. Legend on Certificates. Each certificate evidencing ownership of Restricted Stock issued during the Restricted Period shall bear the following legend: "These shares have been issued or transferred subject to a Restricted Stock Performance Award and are subject to substantial restrictions, including a prohibition against transfer and a provision requiring transfer of these shares to the Company without payment in the event of termination of the employment of the registered owner under certain circumstances all as more particularly set forth in a Restricted Stock Performance Award Agreement dated [Date], a copy of which is on file with the Company." 8. Miscellaneous. This Agreement may not be amended except in writing and neither the existence of the Plan and this Agreement nor the Target Award granted hereby shall create any right to continue to be employed by the Corporation or its subsidiaries and your employment will continue to be at will and terminable at will by the Corporation. In the event of a conflict between this Agreement and the Plan, the Plan shall govern. 9. Compliance With Laws. (a) This Agreement shall be governed by the laws of the state of Delaware and any applicable laws of the United States. Notwithstanding anything herein to the contrary, the Corporation shall not be obligated to cause to be delivered any Restricted Stock or shares of Common Stock of the Company represented thereby pursuant to this Agreement unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws and regulations of governmental authority. The Corporation shall in no event be obliged to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law or regulation. (b) If you are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), transactions under the Plan and this Agreement are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan, this Agreement or action by the Committee involving you is deemed not to comply with an applicable condition of Rule 16b-3, such provision or action shall be deemed null and void as to you, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan and/or this Agreement does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements or the price and amount of awards as applicable) shall be deemed automatically to be incorporated by reference into the Plan and/or this Agreement insofar as you are concerned, with such incorporation to be deemed effective as of the effective date of such Rule 16b-3 provision. In addition, the Committee in its discretion may cause the Company to retain custody of the certificates representing the Common Stock to be delivered under Paragraph 5 above so long as necessary or appropriate to ensure that any minimum holding period under Rule 16b-3 is satisfied. AMERICAN HOME PRODUCTS CORPORATION By: ______________________________ Corporate Treasurer Accepted and agreed to: ____________________________________ _______________________ Name (Please Print) Social Security Number ____________________________________ _______________________ Signature Date of Birth SCHEDULE A ELECTION FORM (To Be Completed in Conjunction with Your Restricted Stock Performance Award Agreement) I, (PRINT NAME) , hereby make an election to defer distribution of all shares of Restricted Stock and to cause the Company to deposit such shares to an account in my name in the Restricted Stock Trust (with any dividends thereon to be reinvested under the AHPC Master Investment Plan) together with a stock power to be executed by me. See Note Below This election shall be irrevocable upon execution of the Agreement. _________________________________ Signature of Executive Dated: ______________________________________________________ Witnessed: __________________________________________________ NOTE: 1. If you are or are expected to be a Named Executive Officer with respect to the year in which the Conversion Date occurs, you will be deemed to have elected deferred distribution hereunder. Beneficiary Designation In the event of my death, I designate the following beneficiary (ies) to receive any shares of the Company's Common Stock to be distributed to me or which have been deferred on my behalf to the Restricted Stock Trust under this Agreement together with any dividends thereon. ___________________________________________________________________________ Beneficiary (ies) ___________________________________________________________________________ Contingent Beneficiary (ies) _____________________________ Signature of Executive Dated: ______________________________________________________ Witnessed: __________________________________________________ EX-10.34 13 EXHIBIT 10.34 AMERICAN HOME PRODUCTS CORPORATION ("AHPC") ELECTION FORM FOR THE DIRECTORS' DEFERRAL PLAN (THE "PLAN") TO: Treasurer American Home Products Corporation 1. Transfer of Account Balance From the AHPC Nonfunded Deferred Compensation Plan for Outside Directors ("Deferred Compensation Plan") FOR DIRECTORS WHO ARE PARTICIPANTS IN THE DEFERRED COMPENSATION PLAN AS OF THE EFFECTIVE DATE OF THE PLAN I hereby elect to transfer the following portion of my account balance in the Deferred Compensation Plan into Share Equivalents under the Plan effective as of May 1, 1997: % or $ of my account balance to be transferred and converted into Share Equivalents (select either a percentage or dollar amount of your account to be transferred to the Plan). I understand that any portion of my account in the Deferred Compensation Plan which I do not elect to transfer into Share Equivalents will automatically be transferred to a Deferred Compensation Account on my behalf on the effective date of May 1, 1997. 2. DEFERRAL ELECTION (a) Amount of Deferral Pursuant to the AHPC Director's Deferral Plan (the "Plan"), I hereby elect to defer receipt of my compensation for services as a Director in the following amounts: (i) $ (must be minimum of $1,000--all compensation will be deferred until the amount you elected is reached). (ii) % of my compensation (to be applied pro rata against all compensation earned as a Director). For purposes of this election, I understand that my compensation includes all retainers and fees payable to me for services performed by me as a Director, including fees for services on a committee of the Board. I understand that the election I am making is irrevocable with respect to amounts deferred under the election for the deferred periods selected below. I further understand that I may amend or revoke my election, in writing, with respect to compensation I will earn in the future NOTE: The terms capitalized on this form which are not otherwise defined are used as defined in the Plan document. (b) Length of Deferral My election will continue in effect (select one): (i) for calendar quarters (specify the number of calendar quarters you wish your election to remain in effect). (ii) until revoked or amended (check if you want election to continue indefinitely but only with respect to compensation you will earn in the future). 3. DISTRIBUTION ELECTION I hereby elect to have amounts credited to my Deferred Compensation Account and/or Vested Share Account (including amounts transferred from the Deferred Compensation Plan, if any, and all amounts transferred from the AHPC Retirement Plan for Outside Directors following satisfaction of the vesting requirements) distributed to me as follows (check (a), (b) or (c)): (a) a lump sum distribution of all amounts in my Accounts. (b) in substantially equal annual installment payments (select a number of installment payments of between 2 and 10 installments). Note: If you select this option, any Share Equivalents in your Vested Share Account will be converted to cash at the time of the first installment payment and, thereafter, your account will be credited with deemed interest (Company Credit) until distributed. (c) in annual installment payments (select a number of installment payments of between 2 and 10 installments). Note: If you select this option, the Share Equivalents in your Vested Share Account will remain in the form of Share Equivalents until they are converted to cash at the time they will be paid to you as part of an installment payment. Any dividend equivalents earned on the Share Equivalents will be converted to cash and distributed as part of the last installment. I understand that if I elect payment option (a), I will receive a lump sum payment of my account as of the first day of the calendar quarter following the calendar quarter in which I cease to be a Director. If I elect payment option (b) or (c), I will receive my first installment payment in January of the year following the year in which I cease to be a Director. 4. Form of Deferral I hereby elect to have the amount of compensation I am deferring pursuant to my election above credited to my Individual Accounts set forth below in the following percentages (select percentages to be deferred in (a) and (b)): (a) % in cash in my Deferred Compensation Account. (b) % in Share Equivalents in my Vested Share Account. 5.. Beneficiary Designation If I die before all amounts in my Deferred Compensation Account and/or Share Accounts have been distributed to me, I direct that the amounts remaining in my Accounts be paid to: (Please Print Name of Beneficiary) (Street ) (City) (State) (Zip Code) I understand that if I die without having designated a Beneficiary, or in the event my designated Beneficiary predeceases me, then any amounts remaining in my Accounts at the date of my death will be paid to my estate. Please sign and date the form below: (Date) (Signature) (Please Print Name) EX-10.37 14 Exhibit 10.37 AMERICAN HOME PRODUCTS CORPORATION DIRECTORS' DEFERRAL PLAN Section 1. Establishment of the Plan . Effective May 1, 1997, there is hereby established a plan whereby Directors of the Company who are not current employees of the Company may voluntarily defer compensation (the "Deferred Compensation" portion of the Plan), and may share in the long-term growth of the Company (the "Deferred Stock" portion of the Plan). Prior to May 1, 1997, the Company maintained the Deferred Compensation portion of the Plan as a separate plan, The AHPC Nonfunded Deferred Compensation Plan for Directors (the "Prior Plan"). The Plan is deemed to consist, in part, of the amounts held under the Prior Plan and any election made by a Director under the Prior Plan, unless and until amended by the Director in accordance with this Plan, shall remain in effect under this Plan. Section 2. Definitions . When used in the Plan, the following terms shall have the definitions set forth in this Section 2: 2.1. Average Closing Price . The term "Average Closing Price" means the average closing market price of the Shares on the Consolidated Transaction Reporting System for the New York Stock Exchange for the last five (5) consecutive trading days on which at least one sale of Shares took place on such System up to and including the date of determination. 2.2. Beneficiary . The term "Beneficiary" means the beneficiary or beneficiaries (including any contingent beneficiary or beneficiaries) designated by the Participant pursuant to Section 7.3 hereof. 2.3. Board of Directors . The term "Board of Directors" means the Board of Directors of the Company. 2.4. Company . The terms "Company" or "AHPC" mean American Home Products Corporation, a Delaware corporation. 2.5. Company Credit . The term "Company Credit" means an amount computed and credited to a Participant's Deferred Compensation Account, as described in Section 6.3, at an annual rate based on the average of the quarter-end yields for a ten-year period (ending September 30 of the prior year) of ten-year U.S. Treasury notes plus two percent (2%). 2.6. Compensation . The term "Compensation" means the retainer and the aggregate of all fees for service and attendance at Board of Director and committee meetings to which a Director is entitled for services rendered to the Company as a Director. 2.7. Deferral Allocation Date . The term "Deferral Allocation Date" means the third Monday of any month, or if Shares are not traded on the New York Stock Exchange on such third Monday of the month, the last day before the third Monday of the month on which Shares are traded on the New York Stock Exchange, that follows the date on which an amount deferred under the Plan would have been paid in cash if a deferral election had not been made hereunder. 2.8. Deferred Amount . The term "Deferred Amount" means the amount of Compensation that a Deferred Compensation Participant elects to defer in accordance with Section 4 hereof. 2.9. Deferred Compensation Account . The term "Deferred Compensation Account" means the account described in Section 6.1. 2.10. Deferred Compensation Participant . The term "Deferred Compensation Participant" means a Director who is not a current employee of the Company and who has currently or previously elected to defer all or part of his/her Compensation pursuant to the Prior Plan or in accordance with Section 4 of this Plan, and for whom a Deferred Compensation Account is currently maintained. 2.11. Deferred Stock Participant . The term "Deferred Stock Participant" means a Director who is not a current employee of the Company and who becomes a Participant in the Plan in accordance with Section 3 hereof. 2.12. Director . The term "Director" means each member of the Board of Directors. 2.13. Disability . The term "Disability" means the complete and permanent inability of an individual, by reason of illness or accident, to perform the individual's duties as a Director. The determination whether a Director has suffered a Disability shall be made by the Board of Directors based upon such evidence as it deems appropriate. 2.14. Dividend Allocation Date . The term "Dividend Allocation Date" means the first Monday that (a) follows a Dividend Payment Date and (b) is the third Monday of a month. 2.15. Dividend Payment Date . The term "Dividend Payment Date" means the date as of which the Company pays a cash dividend on Shares. 2.16. Dividend Record Date . The term "Dividend Record Date" means, with respect to any Dividend Payment Date, the date established by the Board of Directors as the record date for determining shareholders entitled to receive payment of the dividend on such Dividend Payment Date. 2.17. Individual Accounts . The term "Individual Accounts" or "Accounts" means the separate Deferred Compensation Account and Share Accounts, described in Section 6 hereof, which are established under the Plan for each Participant. When used in the singular, the term shall refer to one of these accounts, as the context requires. 2.18. Participant . The term "Participant" means a Director who is a Deferred Stock Participant, a Deferred Compensation Participant, or both, as the case may be. 2.19. Plan . The term "Plan" means the AHPC Directors' Deferral Plan, as set forth herein and as it may be amended from time to time. 2.20. Prior Plan . The term "Prior Plan" has the meaning set forth in Section 1 hereof. 2.21. Share . The term "Share" means a share of Common Stock, par value $.33-1/3 per share, of the Company. 2.22. Share Accounts . The term "Share Accounts" means a Participant's Vested Share Account and Unvested Share Account. 2.23. Share Equivalents . The term "Share Equivalents" means bookkeeping entries credited to a Participant's Share Accounts and denominated in Shares. 2.24. Unvested Share Account . The term "Unvested Share Account" means an account consisting of amounts transferred under Section 5.4 for which the vesting requirements of Section 5.5(ii) have not been satisfied, and which are denominated in Share Equivalents as described in Section 6.2. 2.25. Vested Share Account . The term "Vested Share Account" means an account consisting of amounts transferred under Section 5.4 for which the vesting requirements of Section 5.5(ii) have been satisfied together with amounts deferred hereunder, and which are denominated in Share Equivalents as described in Section 6.2, and including any amounts previously maintained in a Participant's Unvested Share Account which are transferred to such account following satisfaction of the vesting requirements described in Section 5.5(ii). 2.26. Year of Service. The term "Year of Service" means each full year and any partial year an individual served as a Director. For this purpose a "year" is the twelve-month period commencing with the first day of the individual's service as a Director of the Company both before and after the effective date of the Plan. Section 3. Deferred Stock Participant. Each person who as of the effective date of this Plan is currently serving or who is hereafter elected or appointed to serve as a Director, as the case may be, who is not an employee of the Company, and who elects to become a Participant by making a deferral under Section 5.2, or for whom a transfer is made under Section 5.4, shall become a Deferred Stock Participant. A Deferred Stock Participant shall cease to participate in the Plan when the Participant ceases to be a Director. For purposes of the Plan, a Director shall be deemed to cease to be a Deferred Stock Participant on the first day of the month next following the month in which he/she last serves as a Director. Section 4. Deferred Compensation Participant . Prior to the beginning of any calendar quarter in each calendar year, any Director who is not an employee of the Company may defer the receipt of Compensation to be earned by the Director during such calendar quarter and the ensuing calendar quarters by filing with the Company a written election that: (i) defers payment of a designated amount (of One Thousand Dollars ($1,000) or more) or a percentage of his/her Compensation for services attributable to such calendar quarters (the "Deferred Amount"); (ii) specifies the payment option selected by the Participant pursuant to Section 7.2 hereof for such Deferred Amount; and (iii) specifies the options selected by the Participant pursuant to Section 5 hereof for such Deferred Amount. The amount deferred may not exceed the Director's Compensation for the period of deferral. Notwithstanding the foregoing, any individual who is not an employee of the Company, and who is newly elected or appointed to serve as a Director may, not later than thirty (30) days after his/her election or appointment as a Director becomes effective, elect in accordance with the preceding provisions of this Section 4, to defer the receipt of Compensation earned during the portion of the current calendar quarter that follows his/her filing of the election with the Company. Any elections made pursuant to this Section 4 shall be irrevocable when made. Notwithstanding the foregoing, the Board of Directors in its sole discretion, may make a distribution to a Participant under either Section 7.2(i)(a) or 7.4. If a Participant fails to discontinue an election under Section 5 with respect to his/her Deferred Amount for a future period, the Participant's current election shall remain in effect, provided, however, that the Participant may thereafter make a new election with regard to a future period at any time in accordance with the first paragraph of this Section 4. Section 5. Form of Deferred Compensation Credits . 5.1. Deferred Compensation Account . Except with respect to the deferral of Compensation for a quarter in which a Deferred Compensation Participant elects to have all or a percentage of the Deferred Amount credited in Shares in accordance with Section 5.2 hereof, the Deferred Amount shall be denominated in U.S. dollars and credited to the Participant's Deferred Compensation Account pursuant to Section 6.1 hereof. 5.2. Shares . Prior to the beginning of any calendar quarter, a Deferred Compensation Participant may elect, by filing a written election with the Board of Directors, to have all or a percentage of the Deferred Amount for the following calendar quarter and/or ensuing calendar quarters credited in Share Equivalents and allocated to the Participant's Vested Share Account pursuant to Section 6.2 hereof. Any elections made pursuant to this Section 5.2 shall be irrevocable when made. If a Participant fails to discontinue an election under this Section 5 with respect to his/her Deferred Amount for a future period, his/her current election shall remain in effect, provided, however, that the Participant may thereafter make a new election with regard to a future period at any time. 5.3. Transfer of Deferred Compensation Account Balance to Share Account . Prior to the effective date of the Plan, a Deferred Compensation Participant may elect to have all or a portion of his/her final credited account balance in the Prior Plan ( i.e. , the balance as of April 30, 1997) converted to Share Equivalents and credited to the Participant's Vested Share Account. Such conversion shall take place as of May 1, 1997, based on the Average Closing Price as of May 1, 1997. 5.4. Transfer of Present Value of Accrued Benefits Under Retirement Plan to Sha re Account . Prior to the effective date of the Plan, a Deferred Compensation Participant shall have allocated to his/her Unvested Share Account, or if a Participant has satisfied the vesting requirements set forth in Section 5.5(ii) hereof, to his/her Vested Share Account, the number of Share Equivalents (maintained in fractions and rounded to three (3) decimal places) having a market value (calculated as set forth below) equal to the actuarial present value as of May 1, 1997, of the amount that would have been due to such Participant under the AHPC Retirement Plan for Outside Directors at the time of his/her earliest retirement date assuming that the Participant has then satisfied the vesting requirements thereunder. Such actuarial present value calculation shall be performed by the Company in its discretion and shall be converted to Share Equivalents and credited to the Participant's Unvested or Vested Share Account, as the case may be. Such conversion shall take place as of May 1, 1997, based on the Average Closing Price as of that date. 5.5. Vesting of Unvested Share Account . (i) All amounts transferred pursuant to Section 5.4 shall be maintained in a Vested Share Account to the extent vested at the time of transfer. All amounts which are not vested will be held in an Unvested Share Account until the Participant shall have satisfied the vesting requirements set forth in Section 5.5(ii), at which time such amounts in the Participant's Unvested Share Account shall be transferred from such Unvested Share Account and shall become a part of or be added to the Participant's Vested Share Account. (ii) A Participant shall have satisfied the vesting requirements upon completion of at least ten (10) Years of Service and attainment of age sixty-five (65), provided, however, that a Participant who ceases to be a Director prior to attainment of age sixty-five (65) with at least ten (10) Years of Service shall be deemed to have satisfied the vesting requirements upon the first to occur of (1) attainment of age sixty-five (65), (2) death, or (3) Disability. Section 6. Individual Accounts . The Company shall maintain Individual Accounts for Participants, as follows: 6.1. Deferred Compensation Account . The Company shall maintain a Deferred Compensation Account in the name of each Deferred Compensation Participant with respect to any amounts deferred under the Plan which the Deferred Compensation Participant does not elect to have credited in Share Equivalents pursuant to Section 5.2 or 5.3 hereof. The opening balance of each Participant's Deferred Compensation Account on the effective date of this Plan shall be equal to the closing balance on the immediately preceding date of the corresponding account maintained on the Participant's behalf under the Prior Plan, if any, less any portion of such account converted to Share Equivalents and allocated to the Participant's Vested Share Account pursuant to Section 5.3 hereof. The Deferred Compensation Account shall be denominated in U.S. dollars, rounded to the nearest whole cent. A Deferred Amount allocated to a Deferred Compensation Account pursuant to Section 5.1 hereof shall be credited to the Deferred Compensation Account as of the Deferral Allocation Date. 6.2. Share Accounts . The Company shall maintain Share Accounts consisting of (i) a Vested Share Account and (ii) an Unvested Share Account. The Share Accounts shall be denominated in Share Equivalents, and shall be maintained in fractions rounded to three (3) decimal places. Share Equivalents allocated to a Deferred Stock Participant's Vested Share Account in accordance with the Participant's election under Section 5.2 hereof, shall be credited to the Participant's Vested Share Account as of the Deferral Allocation Date. Share Equivalents and, if necessary, fractional Share Equivalents, shall be credited to a Participant's Vested Share Account based on the Average Closing Price at the Deferral Allocation Date. 6.3. Accrual of Company Credit . The Treasurer of the Company shall determine the annual rate of Company Credit on or before December 31 of each calendar year. This rate shall be effective for the following calendar year. The Company Credit shall be compounded and credited to each Deferred Compensation Account as of the last day of each calendar quarter for each month (or part thereof) that the Participant serves as a Director during such calendar quarter. If a Participant elects the payment option under either Section 7.2(i)(b) or Section 7.2(i)(c) below, the Company Credit shall continue to be credited to the Participant's account until distributed. 6.4. Cash Dividends . Cash dividends paid on Shares shall be deemed to have been paid on the Share Equivalents allocated to each Participant's Share Accounts and shall be treated as if the allocated Share Equivalents were actual Shares issued and outstanding on the Dividend Record Date. An amount equal to the amount of such dividends shall be credited in Share Equivalents to each Share Account as of each Dividend Allocation Date based on the Average Closing Price at the Dividend Allocation Date. 6.5. Capital Adjustments . The number of Share Equivalents allocated to Share Accounts shall be adjusted by the Board of Directors, as it deems appropriate, to reflect stock dividends, stock splits, reclassifications, spinoffs, and other extraordinary distributions, as if those Share Equivalents were actual Shares. 6.6. Account Statements . Within a reasonable time following the end of each calendar year, the Company shall provide an annual statement to each Participant. The annual statement for each Participant shall report the number of Share Equivalents credited to each of the Participant's Share Accounts and shall report the dollar amount credited to the Participant's Deferred Compensation Account as of December 31 of that year. Section 7. Payment Provisions . 7.l. Method of Payment . All payments to a Participant (or to a Participant's Beneficiary or estate, as the case may be) with respect to the Participant's Deferred Compensation Account and Vested Share Account shall be paid in cash only, with Share Equivalents valued as set forth in Section 7.2 below. 7.2. Payment Options . (i) At the time each Director elects to make a deferral or, for Participants who are Directors on May 1, 1997, prior to the effective date of the Plan, the Participant shall select a payment option with respect to the payment of the Participant's Individual Accounts from the following payment options: (a) a lump sum paid in the calendar quarter first day of the calendar quarter following the calendar quarter in which the Participant ceases to be a Director; (b) payments in substantially equal annual installments over a period of between two (2) to ten (10) years, as elected by the Participant at the time he/she makes his/her election under this paragraph (i)(b), commencing in January of the calendar year following the calendar year during which the Participant ceases to be a Director with Share Equivalents in the Participant's Vested Share Account treated as described in paragraph (iii) below; or (c) payments in annual installments over a period of between two (2) to ten (10) years as elected by the Participant at the time he/she makes his/her election under this paragraph (i)(c), commencing in January of the calendar year following the calendar year during which the Participant ceases to be a Director, with Share Equivalents in the Participant's Vested Share Account treated as described in paragraph (iv) below. (ii) If the payment option described in paragraph (i)(a) above has been elected, the amount of the lump sum with respect to the Participant's Deferred Compensation Account shall be equal to the amount credited to the Participant's Deferred Compensation Account as of the last business day of the calendar quarter preceding the date of payment, and the amount of the lump sum with respect to the Participant's Vested Share Account shall be equal to the Average Closing Price as of last business day of the calendar quarter preceding the date of payments multiplied by the number of Share Equivalents credited to the Participant's Vested Share Account as of such date. (iii) If the payment option described in paragraph (i)(b) above has been elected, the value of the Participant's Vested Share Account shall be added to the amount in such Participant's Deferred Compensation Account based on the Average Closing Price at the date of the first payment and the amount of each installment with respect to the Participant's Deferred Compensation Account (including the amount transferred from the Participant's Vested Share Account) shall be paid annually, in substantially equal installment amounts. The determination of the amount of substantially equal installment payments shall be a fixed annuity computation determined based on the amount of the Participant's Deferred Compensation Account (including the amount transferred from the Participant's Vested Share Account) at the time of the first payment, the annual rate of the Company Credit at that time and the number of installments selected, assuming compounding of the Company Credit on a quarterly basis. (iv) If the payment option described in paragraph (i)(c) above has been elected, the amount of each installment with respect to the Participant's Deferred Compensation Account and Vested Share Account shall be paid annually, in installment amounts. The amount to be distributed annually with respect to Share Equivalents shall be computed by dividing the number of Share Equivalents in the Participant's Vested Share Account by the number of installment payments selected, with the resulting number of Share Equivalents paid in cash, based on the Average Closing Price as of the December 31 preceding each date of payment. Any additional amounts in respect of Share Equivalents relating to dividend equivalents during the duration of installment payments shall be included with and paid as part of the last installment. (v) If the Participant fails to elect a payment option, the amount credited to the Participant's Deferred Compensation Account and Vested Share Account shall be distributed in a lump sum in accordance with the payment option described in paragraph (i)(a) and paragraph (ii) above. If, at the time a Participant ceases to be a Director, the amount credited to a Participant's Deferred Compensation Account and the value of Share Equivalents credited to a Participant's Share Accounts is less than $25,000 in the aggregate, the Board of Directors, in its sole discretion, may pay out the amount credited to such Account in a lump sum as if such Participant elected distribution under paragraph (i)(a) above. (vi) Notwithstanding the foregoing, any amounts in a Participant's Unvested Share Account at the time the Participant ceases to be a Director shall be (a) forfeited if the Participant has not completed at least ten (10) Years of Service, or (b) if the Participant has completed at least ten (10) Years of Service, shall be paid to the Participant, in the manner selected in paragraph (i)(a), (i)(b), or (i)(c) above, upon the first to occur of (1) attainment of age sixty-five (65),or (2) Disability, provided, however, that if the payment option described in paragraph (i)(a) above has been selected, the value of such Unvested Share Account shall be determined based on the Average Closing Price as of the December 31 preceding the date of payment , and thereafter shall be treated as if it were part of the Participant's Deferred Compensation Account. If the payment option described in paragraph (i)(b) above has been selected, payment shall be made in accordance with Section 7.2(iii). If the payment option in paragraph (i)(c) above has been selected, payment shall be made in accordance with Section 7.2(iv). Notwithstanding the foregoing, any benefits in the Unvested Share Account at the date of a Participant's death shall be paid to the Participant's Beneficiary or estate, as the case may be, in accordance with Section 7.3. 7.3. Payment Upon Death . Notwithstanding any other provision of the Plan to the contrary, within a reasonable period of time following the death of a Participant, the amount credited to the Participant's Deferred Compensation Account and all of the Share Equivalents credited to the Participant's Share Accounts shall be paid by the Company in a lump sum to the Participant's Beneficiary. For purposes of this Section 7.3, the amount credited to the Participant's Deferred Compensation Account, and the number and value of Share Equivalents credited to the Participant's Share Accounts, shall be determined as of the date of payment using the Average Closing Price. A Participant may designate a Beneficiary, in writing, in a form acceptable to the Board of Directors. A Participant may revoke a prior designation of a Beneficiary and may also designate a new Beneficiary without the consent of the previously designated Beneficiary, provided, however, that such revocation and new designation (if any) are in writing, in a form acceptable to the Board of Directors, and filed with the Board of Directors before the Participant's death. If the Participant does not designate a Beneficiary, or if no designated Beneficiary survives the Participant, any amount not distributed to the Participant during the Participant's life shall be paid to the Participant's estate in a lump sum in accordance with this Section 7.3. 7.4. Payment on Unforeseeable Emergency . The Board of Directors may, in its sole discretion, direct payment to a Participant of all or of any portion of the vested portion of a Participant's Accounts, notwithstanding an election of a payment option under Section 7.2 above, at any time that the Board of Directors determines that such Participant has an unforeseeable emergency, and then only to the extent reasonably necessary to meet the emergency. For purposes of this section, "unforeseeable emergency" means severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Section 8. Ownership of Shares . A Participant shall have no rights as a shareholder of the Company with respect to any Shares represented by the Share Equivalents described hereunder. Section 9. Prohibition Against Transfer . The right of a Participant to receive payments under the Plan may not be transferred except by will or applicable laws of descent and distribution. A Participant may not assign, sell, pledge, or otherwise transfer amounts to which he/she is entitled hereunder prior to payment thereof to the Participant. Section 10. General Provisions . 10.1. Director's Rights Unsecured . The Plan is unfunded. The right of any Participant to receive payments of cash under the provisions of the Plan shall be an unsecured claim against the general assets of the Company. 10.2. Administration . Except as otherwise provided in the Plan, the Plan shall be administered by the Board of Directors, which shall have the authority to adopt rules and regulations for carrying out the Plan, and which shall interpret, construe, and implement the provisions of the Plan. This Plan is intended to comply with Section 16 of the Securities Exchange Act of 1934, as amended (the "Act") and the rules promulgated thereunder. Any election by a Participant which would be in violation of the Act or the rules thereunder causing short-swing liability shall be deemed ineffective under the Plan, and such election shall be deemed to be null and void. 10.3. Legal Opinions . The Board of Directors may consult with legal counsel, who may be counsel for the Company or other counsel, with respect to its obligations and duties under the Plan, or with respect to any action, proceeding, or any questions of law, and shall not be liable with respect to any good faith action taken, or omitted, by it pursuant to the advice of such counsel. 10.4. Liability . Any decision made or action taken by the Board of Directors, or any employee of the Company or any of its subsidiaries, arising out of or in connection with the construction, administration, interpretation, or effect of the Plan, shall be absolutely discretionary, and shall be conclusive and binding on all parties. Neither the Board of Directors nor any employee of the Company or any of its subsidiaries shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving bad faith, for anything done or omitted to be done. 10.5. Withholding . The Company shall have the right to deduct from all payments hereunder any taxes required by law to be withheld from such payments. The recipients of such payments shall bear all taxes on amounts paid under the Plan to the extent that no taxes are withheld thereon, irrespective of whether withholding is required. 10.6. Legal Holidays . If any day on (or on or before) which action under the Plan must be taken falls on a Saturday, Sunday, or legal holiday, such action may be taken on (or on or before) the next succeeding day that is not a Saturday, Sunday, or legal holiday; provided, however, that this Section 10.6 shall not permit any action that must be taken in one calendar year to be taken in any subsequent calendar year. Section 11. Amendment, Suspension, and Termination . The Board of Directors shall have the right at any time, and for any reason, to amend, suspend, or terminate the Plan, provided, however, that no amendment, suspension, or termination shall reduce the number of Share Equivalents or the cash balance in an Individual Account. Section 12. Applicable Law . The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware, except to the extent that such laws are preempted by federal law. Section 13. Effective Date . The effective date of this Plan is May 1, 1997. Nothing herein shall invalidate or adversely affect any previous election, designation, deferral, or accrual in accordance with the terms of the Prior Plan that were in effect prior to the effective date of this Plan. EX-11 15 EXHIBIT 11 American Home Products Corporation and Subsidiaries Computation of Per Share Earnings (In thousands except per share amounts) Year Ended December 31, 1996 1.Net Income ................................. $1,883,403 2.Reported earnings per share: a. Average number of shares outstanding during the year ............................ 634,834 b. Shares issuable upon the conversion of preferred stock ............................ 592 c. Shares for reported earnings per share calculation (2a+2b) ........................ 635,426 d. Reported earnings per share (1/2c) ... $2.96 3.Primary earnings per share: a. Average number of share outstanding during the year ............................ 634,834 b. Shares issuable upon the conversion of preferred stock ............................ 592 c. Shares deemed outstanding from the assumed execise of stock options reduced by the number of shares purchased with the proceeds (determined using average market price during the year)...................... 11,198 d. Deferred contingent common stock awards 457 e. Shares for primary earnings per share calculation (+3b+3c+3d).................... 647,081 f. Primary earnings per share (1/3e)..... $2.91 4.Fully diluted earnings per share: a. Average number of shares outstanding during the year ........................... 634,834 b. Shares issuable upon the conversion of preferred stock ........................... 592 c. Shares deemed outstanding from the assumed execise of stock options reduced by the number of shares purchased with the proceeds (determined using market price at year-end)............................... 11,924 d. Deferred contingent common stock awards 457 e. Shares for fully diluted earnings per share calculation (4a+4b+4c+4d)........ 647,807 f. Fully diluted earnings per share (1/4e) $2.91 EX-12 16 EXHIBIT 12 American Home Products Corporation Computation of Ratio of Earnings To Fixed Charges (Thousands of dollars, except ratio amounts)
Years Ended December 31, Earnings: 1996 1995 1994* 1993 1992 Earnings from continuing operations before taxes on income $2,755,460 $2,438,698 $2,029,760 $1,992,665 $1,724,070 Add: Fixed charges 605,011 705,047 155,187 91,500 63,403 Minority interest in earnings of consolidated subsidiary 32,496 5,642 5,303 4,027 3,803 Equity loss 0 0 1,691 0 0 Amoritization of capitalized interest 5,621 768 497 0 0 Less: Minority interest in loss of consolidated subsidiary 14,412 4,925 17,873 9,129 3,149 Equity income 10,431 8,129 0 0 0 Capitalized interest 0 7,681 9,792 14,898 0 Dividends on preferred stock of majority- owned subsidiary 0 0 0 3,436 4,589 Total earnings as defined $3,373,745 $3,129,420 $2,164,773 $2,060,729 $1,783,538 Fixed Charges: Interest and amortization of debt expense $571,414 $665,021 $116,661 $47,871 $35,503 Capitalized interest 0 7,681 9,792 14,898 0 Interest factor of rental expense (a) 33,597 32,345 28,734 25,295 23,311 Dividends on preferred stock of majority-owned subsidiary 0 0 0 3,436 4,589 Total fixed charges as defined $605,011 $705,047 $155,187 $91,500 $63,403 Ratio of earnings to fixed charges 5.6 4.4 13.9 22.5 28.1
* - The 1994 results include one month of results of American Cyanamid Company which was acquired by American Home Products Corporation effective December 1, 1994. Assuming the acquisition took place January 1, 1994, the pro forma ratio of earnings to fixed charges would be 2.9 for the year ended December 31, 1994. (a) A 1/3 factor was utilized to compute the portion of rental expenses deemed representative of the interest factor. EX-13 17 1996 ANNUAL REPORT [AMERICAN HOME PRODUCTS LOGO] AMERICAN HOME PRODUCTS CORPORATION IN 1996, AHP INCREASED ITS FOCUS ON GLOBAL HEALTH CARE WHILE ACHIEVING RECORD SALES AND EARNINGS. WE ALSO INTRODUCED SEVERAL IMPORTANT NEW PRODUCTS AND SIGNIFICANTLY ENHANCED OUR PRODUCT PIPELINE. [Graphic] AMERICAN HOME PRODUCTS CORPORATION AMERICAN HOME PRODUCTS CORPORATION CONTRIBUTES TO THE QUALITY OF LIFE WORLDWIDE AS A GLOBAL LEADER IN DISCOVERING AND COMMERCIALIZING INNOVATIVE, COST-EFFECTIVE HEALTH CARE AND AGRICULTURAL PRODUCTS. OUR COMPANY IS FOCUSED ON FINDING BREAKTHROUGH MEDICAL THERAPIES IN AREAS OF CRITICAL NEED, WITH ONE OF THE LARGEST COMMITMENTS TO BASIC AND CLINICAL RESEARCH IN OUR INDUSTRY. MILLIONS OF PEOPLE BENEFIT FROM OUR COMPANY'S BROAD, EXPANDING LINES OF PRESCRIPTION DRUGS, VACCINES, NUTRITIONALS, OVER-THE-COUNTER MEDICATIONS AND MEDICAL DEVICES. IN 1996, MORE PRESCRIPTIONS WERE DISPENSED IN THE UNITED STATES FOR THE PHARMACEUTICALS OF AHP THAN FOR THOSE OF ANY OTHER COMPANY. WE ALSO ARE RECOGNIZED FOR LEADERSHIP IN DEVELOPING, MANUFACTURING AND MARKETING ANIMAL HEALTH CARE AND AGRICULTURAL PRODUCTS. IN 1996, THE COMPANY ACHIEVED RECORD SALES AND EARNINGS, AND THE DIVIDEND WAS INCREASED FOR THE 45TH CONSECUTIVE YEAR. CONTENTS: 2 Chairman's Report to Shareholders 6 AHP at a Glance 8 1996 Highlights 14 Pharmaceutical Products Pipeline 16 Principal Products - United States 17 Financial Section 43 Board of Directors and Principal Officers 44 Corporate Data [GRAPHIC] FINANCIAL HIGHLIGHTS
Years Ended December 31, 1996 1995 - ------------------------------------------------------------------------------------------- (In thousands except per share amounts) Net sales ............................. $14,088,326 $13,376,089 Net income ............................ 1,883,403 1,680,418 Net income per common share ........... 2.96 2.71 Dividends per common share ............ 1.565 1.51 Total assets .......................... 20,785,343 21,362,923 Stockholders' equity .................. 6,962,092 5,542,998 - -------------------------------------------------------------------------------------------
[Bar Graph omitted] EARNINGS PER SHARE [Bar Graph omitted] DIVIDENDS PER SHARE [Bar Graph omitted] NET SALES [Bar Graph omitted] NET INCOME(1) (1) Net income in 1987 excludes a provision related to Dalkon Shield claims of $1,750 recorded by A.H. Robins Company, Incorporated prior to its acquisition by the Company in 1989. 1 "Looking ahead, we have many reasons to believe that American Home Products is in an exceptional position to continue its robust growth in earnings and global market share. Management, throughout our operating companies and at the corporate level, shares a commitment to build our Company and displays the resourcefulness and flexibility to move quickly and decisively as opportunities unfold." John R. Stafford Chairman, President and Chief Executive Officer [Picture of John R. Stafford] Chairman's Report to Shareholders I am pleased to report that 1996 - our 70th anniversary - was by all standards a very good year for American Home Products Corporation. We recorded a strong sales increase that was in line with our expectations, and net income was up substantially as well. The year also saw significant developments that underscore our determination to sustain AHP's growth as a leader in global health care and agricultural markets. We introduced several major new products in our pharmaceutical and consumer businesses. Our ability to discover and commercialize new products was strengthened considerably by the largest annual research and development expenditure in our Company's history and through the acquisition of Genetics Institute. We realized significant cost savings by completing the integration of American Cyanamid, which has strengthened our health care businesses and given us a major presence in agricultural products. By completing the sale of a 2 majority interest in the American Home Foods business for $1.2 billion, we are able to devote more resources to our core businesses. All of these factors were reflected in another year of gains for our Company's stock. Over the past two years, AHP's share price has increased more than 83%. The international portion of our business exhibited continued growth, accounting for more than 40% of total sales in 1996. This is a significant increase versus only five years ago. We have strong momentum in many markets outside the United States that we believe offer excellent opportunities for our human health care, veterinary care and agricultural products franchises in years to come. In 1996, net sales increased to $14.1 billion, and income before taxes increased to $2.8 billion. After adjusting for businesses sold, discontinued or acquired in 1996 and 1995, net sales increased 7% for the year. Excluding from 1996 results the gain on the sale of American Home Foods and the special charges related to the acquisition of the remaining equity interest in Genetics Institute, net income and net income per share for the 1996 full year were $1.9 billion and $2.95, respectively. This represents increases of 27% and 23%, respectively, over 1995 comparable amounts. The dividend increased for the 45th consecutive year, and in April 1996, the shareholders approved a two-for-one stock split of the Company's common stock. RESEARCH AND DEVELOPMENT American Home Products is committed to being at the forefront of the world's health care and agricultural products companies. This requires a significant and sustained commitment to innovative R&D. In 1996, we invested more than $1.4 billion in R&D, of which $1.1 billion was in pharmaceutical research. Wyeth-Ayerst now has more than 60 potential new pharmaceutical products in clinical development or on file with the U.S. Food and Drug Administration. Our expanding pipeline, which is profiled on pages 14-15, includes numerous product candidates in Phase III and Phase II clinical trials. Three New Drug Applications were filed with the FDA in 1996. They include Verdia, an angiotensin II antagonist that controls hypertension with fewer side effects and with better compliance than current therapies; Effexor XR, a once-a-day dosing version of our antidepressant Effexor; and Alesse, a low-dose levonorgestrel/ethinyl estradiol oral contraceptive. Also in 1996, the Biological License Application for Neumega rhIL-11 was filed for chemotherapy-induced thrombocytopenia. In January 1997, a Product License Application (PLA) was filed for Rotashield, the first effective vaccine to prevent rotaviral gastroenteritis in infants. We also filed a PLA for Tetracel, which provides prophylaxis against diphtheria, tetanus, pertussis and Haemophilus influenzae b infections with reduced side effects. In addition, an approvable letter was received for Normiflo, a low molecular-weight anticoagulant used in knee surgery. Duract, which received an approvable letter in 1995 as a therapy for moderate to moderately severe pain, is in the final stages of labeling discussions. [PIE CHART - Sales by Geographic Segment - omitted] In December, we took a major step to further strengthen our biotechnology effort by exercising our option to acquire the outstanding shares of Genetics Institute not already owned by AHP for $1.3 billion. Genetics Institute has a powerful drug discovery program and a growing pipeline with promising biotechnology products in important therapeutic areas such as anemia, hemophilia, cancer, bone damage and infectious disease. The completion of this acquisition signals our confidence that Genetics Institute has the potential to be a world leader in biotechnology and facilitates R&D coordination with Wyeth-Ayerst Research. ETHICAL PHARMACEUTICALS Strong sales gains were registered by our pharmaceutical business. Wyeth-Ayerst made excellent progress in expanding its global pharmaceutical franchise, launching five new pharmaceutical products as well as several important new claims or dosage forms for established products in the United States. The company also received marketing approvals for many products in other countries. Premarin, our hormone replacement therapy, was the most widely dispensed prescription drug in the United States in 1996. Single tablet Prempro and 3 Premphase, unique, patented formulations, were introduced in January 1996 and were very well received as convenient therapies for vasomotor symptoms related to menopause and the prevention of osteoporosis. Redux, the first prescription weight-loss drug to be cleared by the FDA in more than 20 years, was one of the most successful drug launches ever. Effexor, our dual-acting antidepressant achieved rapid growth in U.S. and international markets. We continued to expand our major presence in non-steroidal anti-inflammatories, introducing Naprelan, which is an improvement over the conventional formulation of naproxen sodium, and extending the Lodine franchise. Lodine, the second most prescribed branded non-steroidal anti-inflammatory drug in the United States, added a 500 mg. dosage strength, a new rheumatoid arthritis indication and an extended-release formulation. Zosyn received an additional indication for nosocomial pneumonia, an illness that accounts for the largest hospital usage of antibiotics. At year end, the FDA approved Acel-Imune, our acellular pertussis vaccine, for all five doses in the diphtheria, tetanus and pertussis immunization series. In February 1997, BeneFIX, our Hemophilia B therapy, also received FDA approval. CONSUMER HEALTH CARE Whitehall-Robins remained one of the world's leading OTC health care companies. On a pro forma basis, our international business grew at a double-digit pace while sales were up slightly in the United States. We continue to have very high growth expectations for this business for three reasons. First, health care systems worldwide are showing increased interest in OTC products as a means of containing costs. Second, we have one of the strongest franchises with leading products - including Advil, Robitussin and Centrum - in key categories. Third, we are taking steps to ensure that Whitehall-Robins is a leader in R&D. In 1996, we broke ground on a $75 million expanded laboratory complex in Richmond, Virginia, that will serve as our OTC R&D center for the Americas. We are particularly focused on Rx to OTC conversions. This is an area in which we recorded significant accomplishments in 1996, introducing Children's Advil in the pediatric analgesic market and Axid AR in the rapidly growing acid reducer/antacid market. [PIE CHART - Net Sales by Segment - omitted] MEDICAL DEVICES The highly competitive environment in the medical devices business affected sales for Sherwood-Davis & Geck, one of the world's leading manufacturers and marketers of specialized medical devices. However, cost reductions from the integration of Sherwood Medical and Davis & Geck significantly improved profitability, and we expect sales to increase in 1997. The company's strategy of developing products in higher margin businesses took a step forward with the approval of Angio-Seal. This innovative arterial puncture closure device improves patient comfort, minimizes the risk of complications and significantly reduces costs associated with treating arterial punctures in cardiac catheterization and diagnostic angiography procedures. ANIMAL HEALTH CARE Our animal health business continues to grow worldwide and is an increasingly important contributor to our earnings. In 1996, sales were up significantly for Fort Dodge Animal Health in pharmaceutical and biological markets. In September, we announced our intention to acquire the worldwide animal health business of Solvay S.A. for approximately $460 million. Solvay's product lines will complement Fort Dodge Animal Health and will provide a greater market presence in Europe and the Far East. The combined businesses will represent the third largest animal health franchise in the world. We expect to complete the purchase in the first quarter of 1997. AGRICULTURAL PRODUCTS Worldwide growth was recorded for Cyanamid Agricultural Products, a global leader with major herbicides, insecticides and fungicides. This growth was partially attributable to recently introduced products, reflecting Cyanamid's excellent R&D capability, historically one of the strongest in the industry. In 1997, we expect full regulatory approval of a potent new insecticide for use on cotton, vegetables and citrus, and we will continue our further development of the imidazolinone class of herbicide for use on soybeans and other crops. 4 [Picture of AHP on-site child development center] - -------------------------------------------------------------------------------- American Home Products is committed to assisting employees in balancing work and family responsibilities. In 1996, AHP was proud to be included in the "Working Women Count Honor Roll," a Department of Labor initiative recognizing corporations that take new steps to improve the workplace and accommodate the needs of working families. AHP's on-site child development centers in Madison, New Jersey; and Pearl River, New York, as well as dependent care spending accounts and resource and referral services, are examples of AHP's commitment to practices that are friendly to families. These programs underscore our Company's belief that employee satisfaction increases productivity and improves overall performance. In recognition of the Company's family-friendly policies, Tipper Gore, wife of Vice President Al Gore, visited AHP's corporate headquarters in May 1996. During her visit, Mrs. Gore stated: "AHP was one of the first to answer President Clinton's call for companies to adopt more pro-family policies. Its programs provide a model for other corporations." - -------------------------------------------------------------------------------- CHANGES IN THE BOARD OF DIRECTORS AND MANAGEMENT Ivan Seidenberg, Chairman and Chief Executive Officer of NYNEX, was elected to the Board of Directors effective November 1996. Our Company will benefit greatly from the knowledge and experience he brings to our Board as a highly respected business leader. Stanley F. Barshay, Senior Vice President of American Home Products, retired in the early part of 1997 after 32 years of exemplary service. We thank him for his fine work and many contributions to our Company. Carol G. Emerling, Secretary of American Home Products, retired in January 1997 after 19 years of outstanding service. We thank her for her many contributions to our Company. Eileen M. Lach assumed the role of Secretary effective January 1, 1997. Egon E. Berg, head of the Patents and Trademarks section of the Law Department, was promoted to Vice President and Associate General Counsel. OUTLOOK FOR 1997 AND BEYOND Looking ahead, we have many reasons to believe that American Home Products is in an exceptional position to continue its robust growth in earnings and global market share. Management, throughout our operating companies and at the corporate level, shares a commitment to build our Company and displays the resourcefulness and flexibility to move quickly and decisively as opportunities unfold. As it has been historically, a key to our long-term growth is the breadth and strength of our product franchise. In virtually every ethical pharmaceutical, OTC, medical devices, animal health and agricultural products category in which we compete, we have products that are leaders or are among the leaders. This gives us a major advantage in extending product lines and introducing new, more advanced products. Further, our well-financed R&D program is productive, high quality, and well-staffed and equipped and will continue generating major new products that will propel our Company in the future. We have very promising collaborative agreements with top-quality research-based companies that complement our R&D. Also, with our financial strength, we are able to continue exploring acquisitions that can accelerate our growth. Building our Company worldwide in competitive, changing markets depends, of course, on having top-quality employees at all levels in all of our businesses. In 1996, we enhanced our benefits and compensation programs to ensure that we continue to attract and retain the very best people in our industry. On behalf of the Board of Directors, I would like to thank our employees for their efforts in 1996 and express our enthusiasm about working with them in the future. Together, I am confident that we can face the challenges of the competitive marketplace and that this will continue to be reflected in shareholder value. /s/ John R. Stafford - ----------------------- John R. Stafford Chairman, President and Chief Executive Officer February 26, 1997 5 [Graphics omitted] AMERICAN HOME PRODUCTS CORPORATION AT A GLANCE... Underpinning the growth of American Home Products worldwide is a global product franchise that is among the strongest and most extensive in the world. We are recognized for marketing high-quality health care products which contribute to the well-being of millions of people worldwide. We also are known for innovative agricultural products which support the world's food production system. Highlighted here are some of AHP's major businesses. [Picture of Ethical Pharmaceuticals, Vaccines and Nutritionals] ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS WOMEN'S HEALTH CARE Wyeth-Ayerst's commitment to women's health care is unsurpassed. The company is the largest provider of hormone replacement therapy and hormonal contraceptive products worldwide and is a leader in product innovation, basic and clinical research, and educational and informational initiatives. CARDIOVASCULAR AND ANTIOBESITY THERAPIES The broad, growing line of cardiovascular products available from Wyeth-Ayerst includes Cordarone, the number one selling antiarrhythmia product in the United States, as well as major treatments for hypertension and angina. Redux, the first prescription weight-loss product approved in more than 20 years, is a significant new therapy for one of the most prevalent metabolic diseases. MENTAL HEALTH PRODUCTS Important, innovative therapies for depression, anxiety and related disorders are marketed by Wyeth-Ayerst worldwide. Effexor, a novel antidepressant, is gaining recognition internationally and is benefiting in the United States from increased awareness of the serious implications of depression for patients and society and the importance of effective treatment. ANTI-INFLAMMATORY DRUGS Wyeth-Ayerst's position as a leader in the branded non-steroidal anti-inflammatory drug (NSAID) category in the United States was strengthened by the introduction of Naprelan and the further expansion of Lodine, the second most widely prescribed NSAID. 6 [Picture of Ethical Pharmaceuticals, Vaccines and Nutritionals] ETHICAL PHARMACEUTICALS, VACCINES AND NUTRITIONALS VACCINES AND ONCOLOGY THERAPIES Wyeth-Lederle Vaccines and Pediatrics is a leader in childhood and adult vaccines in the United States and is at the forefront of efforts to discover vaccines for deadly diseases that remain significant risks globally. Leukine, an oncology drug from Immunex, was approved in 1996 in a new, convenient, liquid multiple-dose formulation. NUTRITIONALS Infant nutritional products developed by Wyeth-Ayerst are among the leaders in many international markets. These products, which include first-age, soy-based, follow-on and growing-up formulas, are scientifically formulated to meet the nutritional and therapeutic needs of infants and children. GENERIC PRODUCTS ESI Lederle, one of the largest suppliers of generic oral and injectable products in the United States and a leading supplier of injectables to hospitals, is well-positioned to capitalize on positive long-term growth potential in the generics business. In 1996, this Wyeth-Ayerst business division launched eight new products, bringing its total franchise to more than 130 products. ANTI-INFECTIVES Wyeth-Ayerst has important anti-infective products that are marketed worldwide. In 1996, Zosyn received clearance for the critically important indication of nosocomial pneumonia, a condition accounting for the largest hospital usage of antibiotics. [Picture] CONSUMER HEALTH CARE The OTC medications and vitamin and mineral supplements of Whitehall-Robins and Lederle represent one of the largest consumer health care franchises in the world, with key products holding the number one or number two position in many major OTC segments. Key to this leadership is the ability to switch major prescription drugs to the OTC market and the continuing globalization of key brands. [Picture] MEDICAL DEVICES Sherwood-Davis & Geck, Storz and Quinton manufacture and market a leading portfolio of specialized medical devices recognized worldwide for quality and cost-efficiency. Key market segments include tubes, catheters and chest drainage products; disposable syringes and needles; enteral feeding systems; thermometry; wound care and wound closure products; cardiopulmonary instrumentation and devices; and vision care products. [Picture] ANIMAL HEALTH CARE Fort Dodge Animal Health ranks second in animal vaccines in North America and is expanding rapidly in international biological and pharmaceutical markets. The acquisition of Solvay S.A.'s animal health business will move Fort Dodge into the global top tier, providing a significant presence in Europe and the Far East and a strong entry into the global swine and poultry biological markets. [Picture] AGRICULTURAL PRODUCTS Cyanamid's growth as a leader in the global agricultural products market is based on innovative herbicide, insecticide and fungicide products that meet increasingly stringent safety and environmental demands. In 1996, more than 120 registrations were received for new uses and combinations of existing products. Approvals are expected in 1997 for five major new products, each of which provides significant advantages over currently available products. 7 1996 HIGHLIGHTS Building Leadership Worldwide THROUGH THE DYNAMIC EFFORTS OF THE PEOPLE OF AHP OPERATING IN 145 COUNTRIES, OUR COMPANY IS CONTINUALLY STRENGTHENED AS A WORLDWIDE LEADER IN HEALTH CARE AND AGRICULTURAL PRODUCTS. THIS SECTION HIGHLIGHTS A NUMBER OF MAJOR ACCOMPLISHMENTS IN 1996 THAT EXPAND-ED OUR GLOBAL PRODUCT PORTFOLIO AND ENHANCED OUR ABILITY TO DISCOVER AND MAKE AVAILABLE NEW, INNOVATIVE PRODUCTS FOR YEARS TO COME. [graphic omitted] - -------------------------------------------------------------------------------- [ Picture of X. Jian Li, M.D.] X. Jian Li, M.D., Principal Scientist-Image Analyst, Bone Biology and Applications, is one of the many dedicated scientists and technicians who contribute to Genetics Institute's leadership in biopharmaceutical research. - -------------------------------------------------------------------------------- MAJOR STEP TOWARD A PREMIER POSITION IN BIOPHARMACEUTICALS In 1996, we acquired the remaining equity interest in Genetics Institute, Inc., underscoring the emergence of this world-class biopharmaceutical company and strengthening a relationship that began in 1992 when we purchased 60% of its capital stock. As a full member of the AHP family, there will be greater opportunities for Genetics Institute to coordinate with other units of our Company on the discovery and commercialization of innovative biotechnology products. Genetics Institute's principal focus is on developing genetically engineer-ed human proteins for use in treating a wide range of health problems. It has a diversified portfolio of licensed and proprietary pharmaceutical products at various stages of development, including treatments for anemia, hemophilia, cancer, bone damage, infectious disease, inflammatory conditions and immune system disorders. Genetics Institute is the world's leading supplier of bulk recombinant Factor VIII, which has captured a significant share of the worldwide market for products that treat Hemophilia A, a hereditary bleeding disorder. In February 1997, BeneFIX coagulation Factor IX (Recombinant) received approval from the U.S. Food and Drug Administration. As the only recombinant treatment for Hemophilia B, BeneFIX is expected to be an important alternative to clotting factor products derived from human plasma, which can present a risk of viral contamination and are dependent on blood donor supply. Also, in December 1996, Genetics Institute filed a Biological License Application for Neumega rhIL-11, an agent useful in preventing platelet deficiency in cancer patients undergoing chemotherapy. 8 - -------------------------------------------------------------------------------- [Picture] Solvay offers breeders and veterinarians a wide range of vaccines and pharmaceutical products. Chad Henning (left), Supervisor, Iowa Select Farms, Iowa Falls, Iowa, consults with Solvay's Ron White, DVM, Professional Services Veterinarian. [Picture of Vaccine Bottle] - -------------------------------------------------------------------------------- ANIMAL HEALTH BUSINESS ENTERS GLOBAL TOP TIER Fort Dodge Animal Health significantly strengthened its ability to address the needs of livestock producers and veterinarians worldwide with the signing of a definitive purchase agreement for the acquisition of the animal health business of Solvay S.A., a Belgium-based multinational corporation. Solvay's product lines complement Fort Dodge's veterinary business, giving the company a greater market presence in Europe and the Far East as well as a strong entry into the global swine and poultry biological markets. By combining the research and development of these organizations, Fort Dodge will be able to more rapidly bring to market new, innovative biologicals and pharmaceuticals worldwide. The acquisition is expect-ed to be completed during the first quarter of 1997. - -------------------------------------------------------------------------------- [Picture] Wyeth-Ayerst field sales representatives like Gloria Tillotson shown here with Carmen Balzano, M.D., of Hamden, Connecticut educate physicians about the use of Redux as part of a comprehensive weight-loss plan. [Picture of Redux bottle] - -------------------------------------------------------------------------------- IMPORTANT NEW OPTION FOR TREATING OBESITY The introduction of Redux (dexfenfluramine HCl) was one of the most successful U.S. drug launches ever. Redux is the first prescription weight-loss product to be approved in more than 20 years and the only pharmaceutical indicated for maintenance of weight loss. The product answers a very serious medical need. Obesity is a disease that is reaching epidemic proportions in the United States, where it affects one in three adults and is the second leading preventable cause of death. Doctors are using this new product to help patients actively manage their weight as part of a plan that includes diet, exercise and behavior modification. Redux is recommended for obese patients with an initial body mass index (BMI) of at least 30 kg/m2 (which is approximately 30% over desirable weight) or, in the presence of other risk factors, including hypertension, diabetes and hyperlipidemia, a BMI of at least 27 kg/m2 (which is approximately 20% over desirable weight). Studies have shown that even modest weight loss of 5% to 10% of overall body weight can significantly improve a patient's health and well-being. Such weight loss has been associated with a reduction in blood pressure and high glucose levels and improvement in lipid profiles. 9 - -------------------------------------------------------------------------------- [Picture] Wilfred Weinstein, M.D. - shown performing an endoscopy procedure at the U.C.L.A. Medical Center in Los Angeles, California - is part of the team of medical researchers conducting Phase III clinical trials in the United States on pantoprazole. - -------------------------------------------------------------------------------- LICENSED PRODUCTS HOLD PROMISE OF HEALTH ADVANCES Several new licensing agreements broadened Wyeth-Ayerst's research and development pipeline in major therapeutic areas. Pantoprazole, to be licensed from Byk-Gulden of Germany, is a proton pump inhibitor that is expected to be a significant entry in the $5.5 billion U.S. upper G.I. distress market. This drug, which entered Phase III trials in the United States at the end of 1996, has been shown to have greater efficacy than H2 antagonists, a reduced level of interaction with other drugs and the potential for intravenous administration. Wyeth-Ayerst's leader-ship in women's health care is expected to benefit in the coming years from ongoing development of the new progestin trimegestone. This licensed product is in Phase III trials in Europe for use in combination with estrogen in hormone replacement therapy (HRT) and is in earlier trials - in combination with estrogen - as an oral contraceptive. It has been shown to provide the high efficacy levels required of contraceptives and HRT products with fewer side effects. Fiblast (trafermin) is expected to enter Phase II trials in 1997 for use in treating acute stroke. Licensed from Scios, Inc., of California,Fiblast is a genetically engineered version of human basic fibroblast growth factor, a naturally occurring substance that plays an important role in defending nerve tissues against oxygen deprivation and other life-threatening events. - -------------------------------------------------------------------------------- [Picture] Children's Advil is the medicine preferred by physicians for treating fever in children. Pediatrician Lisa Ponce, M.D., of Palo Alto, California (shown here with patient Jakes Bercow, age 2, and Jake's mother, Michelle), recommends Children's Advil because it controls children's fevers faster and longer. - -------------------------------------------------------------------------------- RX TO OTC SWITCHES EXPAND CONSUMER CHOICES A key to the leadership of Whitehall-Robins in consumer health care is a major, coordinated research, development, marketing and manufacturing effort to provide new, cost-effective products by bringing prescription drugs to the OTC market. Two important new switch products were introduced in 1996. Children's Advil (ibuprofen) - introduced as a prescription product in 1992 extends the trusted Advil heritage to the growing pediatric analgesic market where it is indicated for relief of fever, minor aches and pains from colds, flu, sore throat, headaches and toothaches. This product provides up to eight hours of relief per dose, allowing children to sleep through the night without remedicating. Axid AR is a non-prescription dose of nizatidine, which has a rapid onset of stomach acid prevention and an excellent safety profile. Acid reducers have become the fastest-growing OTC segment, and Axid AR is the only OTC product in its category with clinical proof that it can completely prevent heartburn when taken as little as 30 minutes prior to a meal. 10 PREMARIN(R)INITIATIVES UNDERSCORE WORLDWIDE LEADERSHIP IN WOMEN'S HEALTH [Picture of bottle] In 1996, Wyeth-Ayerst funded two studies that will use Premarin (conjugated estrogens) and Prempro (conjugated estrogens/medroxyprogesterone acetate) to assess the benefits and risks of hormone replacement therapy in a range of serious health problems. The Women's Health Initiative Memory Study (WHIMS) will be the first of its kind to evaluate the role of HRT in the prevention and treatment of Alzheimer's disease. This landmark study, involving 8,000 women, supplements the Women's Health Initiative, supported by Wyeth-Ayerst since 1992, in examining the role of HRT in cardiovascular disease, osteoporosis and other serious health problems. In addition, the Women's International Study of Long Duration Oestrogen after Menopause (WISDOM) will be the first multinational study to assess the benefits and risks of HRT in postmenopausal women. WISDOM is planned for 34,000 women in 14 countries. These initiatives follow the early 1996 launch of single tablet Prempro and Premphase, which provide the more than 4.5 million postmenopausal women in the United States who use estrogen and progestin an opportunity for the first time to take just one tablet each day for prevention of osteoporosis and relief of menopausal symptoms. Also, according to the latest findings of the Post-menopausal Estrogen/ Progestin Interventions trial, combination HRT not only prevents bone loss but it also increases bone mineral density at critical locations such as the spine and hip. Low bone mineral density is a serious condition of osteoporosis, which contributes to approximately 1.5 million bone fractures each year in the United States alone. - -------------------------------------------------------------------------------- [Picture] Sally Schumaker, Ph.D., of The Bowman Gray School of Medicine at Wake Forest University, is the lead investigator for the milestone Women's Health Initiative Memory Study (WHIMS), spearheaded by The Bowman Gray/Baptist Medical Center in Winston-Salem, North Carolina. - -------------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- [Picture] Alexandra Glucksmann, Ph.D., Senior Scientist, is among the scientists at Millennium Pharmaceuticals, Inc., who work with Wyeth-Ayerst in an alliance that is using genomics technology to discover new therapies for central nervous system disorders. - -------------------------------------------------------------------------------- ALLIANCES FOCUS ADVANCED GENE TECHNOLOGY ON DRUG DISCOVERY Wyeth-Ayerst is extending its medical technology through a growing number of important collaborative research arrangements, including alliances with Millennium Pharmaceuticals, Inc., ChemGenics Pharmaceuticals Inc., and Apollon, Inc. Millennium, a drug discovery company, focuses on identifying the function of genes responsible for chronic diseases and using its technology platform to develop new products that address these diseases at their root causes. Through the agreement, Millennium will provide advanced bioinformatics tools as well as its proprietary RADE and additional transcriptional profiling technologies for application across all of Wyeth-Ayerst's R&D programs. The Wyeth-Ayerst/ Millennium research collaboration initially will concentrate on central nervous system disorders such as anxiety, depression and schizophrenia. ChemGenics is combining its premier gene technology for discovering novel drugs with Wyeth-Ayerst's expertise in antibacterial drug discovery, development and commercialization. The goal is to discover new antibiotics to address the growing problems of poorly treated infections and drug resistant bacteria. Wyeth-Lederle Vaccines and Pediatrics is currently developing a new series of DNA-based vaccines through a strategic alliance with Apollon, Inc. GROWTH POTENTIAL IN AGRICULTURAL PRODUCTS FUELED BY INNOVATION [Picture of Lightning box] New Cyanamid products representing major advances in effectiveness and safety are gaining recognition worldwide. Three of these products are expected to receive approval for the U.S. market in 1997. Lightning (imazethapyr/ imazapyr) is a new formulation of imidazolinones for use as a herbicide on corn hybrids that contain the imidazolinone tolerant trait. Imidazolinones essentially are non-toxic to wildlife and other non-target species and are effective at low application rates. Raptor, (imazamox), an imidazolinone herbicide for use on soy-beans and other legumes, provides season-long control of a variety of weeds. It will be marketed for use in areas where other imidazolinones cannot be used because of restrictions with rotational crops. Pirate (chlorfenapyr) is the first of the new pyrrole class of insecticides, which have proved to be effective in controlling insects that infest a wide range of crops, even where resistance to current insecticides exists. This product has been available since 1995 in certain U.S. states for use on cotton under an EPA-approved emergency exemption and was approved in 1996 in Japan, Thailand, the Republic of Korea and Chile for use on various crops. - -------------------------------------------------------------------------------- [Picture] Tom Whatley, Ph.D., Manager, North America Product Development,observes experimental herbicide studies in a greenhouse at Cyanamid's Agricultural Research Center in Princeton, New Jersey. - -------------------------------------------------------------------------------- 12 STRONG, GROWING PRESENCE IN PAIN AND INFLAMMATION THERAPIES [Picture of Naprelan bottle] The introduction of Naprelan (naproxen sodium) and continued expansion of the Lodine (etodolac) franchise strengthened Wyeth-Ayerst as a leader in the highly competitive $1.8 billion non-steroidal anti-inflammatory drug (NSAID) category in the United States. Naprelan offers important improvements over the widely used conventional formulation of naproxen sodium. It uses the proprietary Intestinal Protective Drug Absorption System to provide patients with rapid onset and 24-hour relief from inflammation and pain with a single dose. Lodine was strengthened as the second most widely dispensed branded NSAID in the United States with the addition of a 500 mg. dosage, a new rheumatoid arthritis indication and the launch of an extended-release formulation. Lodine XL (etodolac extended-release tablets) provides affordable, effective relief of pain and inflammation associated with osteoarthritis and rheumatoid arthritis as well as a convenient, once-a-day treatment schedule that enables patients to better manage their condition. - -------------------------------------------------------------------------------- [Picture] Arthritis sufferer Mary Britton of Atherton, California, found relief from pain and inflammation with Naprelan extended-release tablets. Naprelan is the first once-a-day prescription arthritis medicine to offer fast pain relief and 24-hour control. - -------------------------------------------------------------------------------- 13 AMERICAN HOME PRODUCTS CORPORATION PHARMACEUTICAL PRODUCTS PIPELINE American Home Products enters 1997 with unprecedented momentum in bringing new products to the health care community worldwide. Fifteen major new products, indications or dosage forms were approved in the United States, and approximately 150 approvals were obtained in countries internationally in the prior year. Clinical development is proceeding for more than 60 new pharmaceutical products. A number of the most promising products in post-Phase I trials are described below. The majority of these products have worldwide market potential and are under review by regulatory authorities.
A Approved NDA NDA filed PLA PLA amendment filed III Phase 3 II Phase 2 * U.S. + International - U.S. and International NDA PRODUCT NAME DESCRIPTION/INDICATION STATUS A PLA III II - ------------ ---------------------- ------ - --- --- -- BeneFIX(TM) Hemophilia B; blood-clotting factor * + Crinone(R) Menstrual disorders and Assisted Reproductive Technologies + * HRT in combination with estrogen + Novantrone(R) Metastatic breast cancer + * * (Immunex) Hormone refractory prostate cancer * + Non-Hodgkin's lymphoma (U.S. Phase I and II) + * Synvisc(R) Viscosupplementation for the treatment of osteoarthritis of the knee; joint venture with Biomatrix + * Alesse(TM) Oral contraceptive; lowest available estrogen dose with proven progestin performance of levonorgestrel - Duract(TM) Analgesia for acute and chronic pain (including primary dysmenorrhea) * Effexor(R) XR Once-a-day dosing alternative for Effexor(R) antidepressant - Generalized anxiety disorder; once-a-day - Leukine(R) Prophylaxis of neutropenia resulting from chemotherapy * (Immunex) Prevention of infections in very low birth weight babies; HIV; fungal infections * Melanoma; flu vaccine adjuvant * Lyrelle(TM) Patch Treatment of vasomotor symptoms related to menopause; 3.5 days + Neumega(R) rhIL-11 Chemotherapy-induced thrombocytopenia * Inflammatory bowel disease and chemotherapy- induced mucositis (Phase I and II) *
14
NDA Product Name Description/Indication Status A PLA III II Normiflo(TM) Prophylaxis of DVT and PE in knee surgery * Rotashield(TM)/Rotamune(TM) First effective vaccine to prevent rotaviral gastroenteritis in infants * + Tetracel(TM) Prophylaxis vs. D, T and P and Haemophilus influenzae b diseases (acellular pertussis component) * + Verdia(TM) (tasosartan) Once-a-day anti-hypertensive with improved side effects and compliance * + Enbrel(TM) (TNR-001) Rheumatoid arthritis; joint venture with Immunex - ERT Patch Treatment of vasomotor symptoms related to menopause; 7 days - Gestodene/EE Lowest-dose estrogen/progestin OCto be available - HRT Patch Treatment of vasomotor symptoms related to menopause; 3.5 days - Pantoprazole Erosive esophagitis * Pneumococcal Conjugate Vaccine Prophylaxis against pneumococcal systemic diseases, e.g. otitis media, pneumonia, meningitis - Rapamune(R) Immunosuppressive therapy for prophylaxis of renal, liver, bone marrow and cardiac transplant rejection - rhBMP-2* Bone repair and regeneration + * Tasosartan/HCTZ Once-a-day anti-hypertensive/diuretic with improved side effects and compliance - Trimegestone/17 (beta)-estradiol Treatment of vasomotor symptoms and prevention of osteoporosis with endometrial protection + Zaleplon Non-benzodiazepine sedative/hypnotic for the treatment of general insomnia - CMA-676 Acute myelogenous leukemia - Effexor(R) XL (OROS(R)) Once-a-day Effexor(R) dose form with improved convenience, compliance and side effect profile - Fiblast(R) Stroke (Phase I and II); peripheral vascular disease (Phase I); joint venture with Scios - GPA-748 Oral therapy for the treatment of growth hormone deficiency * Meningococcal Conjugate Vaccine Prophylaxis against meningococcal systemic type C disease - Minalrestat (ARI-509) Adjunct to insulin/oral hypoglycemic agents for prevention/treatment of diabetic complications - rhIL-12 Novel immunomodulator (Phase I and II) - RSV Subunit Vaccine Prevention of RSV-mediated lower respiratory disease for at-risk children and the elderly - VPA-985 Aquaresis -
* Under evaluation by the U.S. Food and Drug Administration as a combination device; currently in pilot studies in the United States 15 Principal Products - United States ETHICAL PHARMACEUTICALS AND VACCINES WOMEN'S HEALTH Lo/Ovral Nordette Ovral Ovrette Premarin Premphase Prempro Stuartnatal Plus Triphasil CARDIOVASCULAR Cordarone Cordarone I.V. Inderal LA ISMO Isordil Quinidex Sectral Tenex Verelan Ziac ANTIOBESITY Pondimin Redux MENTAL HEALTH Ativan Effexor Serax ANTI-INFLAMMATORIES Lodine Lodine XL Naprelan Orudis Oruvail ANTI-INFECTIVES Minocin Myambutol Pipracil Suprax Zosyn VACCINES Acel-Imune FluShield HibTTTER Orimune Pnu-Imune 23 Tetramune Tri-Immunol ONCOLOGY THERAPIES Leukine Novantrone Reglan Thioplex GENERIC PRODUCTS atenolol Aygestin Cycrin dipyridamole fentanyl citrate heparin minocycline HCl propranolol HCl selegiline HCl sufentanil citrate Tubex Wydase SPECIALTY PHARMACEUTICAL PRODUCTS Bulk pancreatin and heparin Oral drug delivery systems OTHER PRODUCTS Micro-K Phenergan CONSUMER HEALTH CARE ANALGESICS AND COUGH/COLD/ALLERGY Advil Advil Cold & Sinus Anacin Children's Advil Dimetapp Dristan Orudis KT Robitussin VITAMIN AND MINERAL SUPPLEMENTS Caltrate Centrum Centrum, Jr. Centrum Silver OTHER PRODUCTS Anbesol Axid AR Chap Stick Denorex FiberCon Preparation H Primatene MEDICAL DEVICES SHERWOOD-DAVIS & GECK Argyle tubes, catheters and drainage devices Blisterfilm, Ultec and Viasorb dressings Davis & Geck wound closure products, including sutures, needles and skin staplers FirstTemp Genius tympanic thermome- ters and Filac predic- tive thermometers Kangaroo enteral feeding systems and enteral access devices Monoject needles and syringes Quinton dialysis catheters Voldyne incentive breathers QUINTON INSTRUMENTS Cardiac stress test systems Cath lab hemody- namic systems Electrocardiographs Electrophysiology systems Filmless angiography systems Holter monitoring systems Intravascular ultra- sound image proc- essing systems Telemetry systems Treadmills and ergometers STORZ INSTRUMENTS Diamox, Neptazane glaucoma therapies ErgoTec instruments Hydroview foldable intraocular lenses MicroSeal, MicroFlow microsurgical hand- pieces and needles OcuCoat viscoelastic Ocuvite vitamins Premiere, Protege microsurgical equipment ANIMAL HEALTH CARE VETERINARY PHARMACEUTICALS AND BIOLOGICALS Discovery Duramune Fel-O-Vax Fluvac Keraset LymeVax Presponse PYRAMID Synanthic Synovex ToDAY ToMORROW Triangle AGRICULTURAL PRODUCTS HERBICIDES Arsenal Assert Cadre Detail Prowl Pursuit Resolve Scepter Squadron Steel INSECTICIDES Amdro Counter Thimet 16 Financial Section Contents 18 Ten-Year Selected Financial Data 20 Consolidated Balance Sheets 21 Consolidated Statements of Income 22 Consolidated Statements of Retained Earnings and Additional Paid-in Capital 23 Consolidated Statements of Cash Flows 24 Notes to Consolidated Financial Statements 35 Report of Independent Public Accountants 35 Management Report on Financial Statements 36 Quarterly Financial Data 36 Market Prices of Common Stock and Dividends 37 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Ten-Year Selected Financial Data (Dollar amounts in thousands except per share amounts)
Years Ended December 31, 1996 1995 1994(3) ---- ---- ------- Summary of Sales and Earnings Net sales ................................................. $14,088,326 $13,376,089 $ 8,966,214 Net income(1) ............................................. 1,883,403 1,680,418 1,528,254 Net income per common share(1)(2) ......................... 2.96 2.71 2.49 Dividends per common share(2) ............................. 1.565 1.51 1.47 Year-End Financial Position Current assets ............................................ $ 7,470,419 $ 7,986,137 $ 7,821,246 Current liabilities ....................................... 4,337,635 4,556,248 4,618,086 Ratio of current assets to current liabilities ............ 1.72 1.75 1.69 Total assets .............................................. 20,785,343 21,362,923 21,674,812 Long-term debt ............................................ 6,020,575 7,808,757 9,973,240 Average stockholders' equity .............................. 6,252,545 4,898,550 4,065,295 Shareholders - Outstanding Shares Number of common shareholders ............................. 67,545 68,763 71,223 Number of preferred shareholders .......................... 541 605 666 Average number of common shares outstanding used for earnings per share calculation (in thousands)(2) 635,426 619,670 614,826 Preferred shares outstanding at year-end (in thousands) ... 31 34 37 Employment Data Number of employees at year-end ........................... 59,747 64,712 74,759 Wages and salaries ........................................ $ 2,634,351 $ 2,674,330 $ 1,820,450 Benefits (including social security taxes) ................ 616,478 684,077 441,768
(1) Net income in 1996 includes a gain of $706,279 on the sale of a majority interest in the American Home Foods business and special charges aggregating $697,854 related to the acquisition of the remaining equity interest in Genetics Institute, Inc. Excluding the gain and special charges, 1996 net income was $1,874,978, and net income per common share was $2.95. Net income in 1995 includes a gain of $623,870 on the sale of the South American oral health care business, special charges of $308,317 and a restructuring charge of $117,156. Excluding these items, 1995 net income was $1,482,021, and net income per common share was $2.39. Net income in 1992 includes the impact of Statement of Financial Accounting Standards (SFAS) No. 106 - "Employers' Accounting for Postretirement Benefits Other Than Pensions," which was a charge of $73,191, and SFAS No. 109 - "Accounting for Income Taxes," which was a credit of $383,295 due to the recognition of tax benefits related to remaining net operating loss carryforwards. The net impact of adopting these statements was an increase to net income of $310,104. Net income in 1992 also includes a charge of $220,000 for acquired in-process research and development acquired from Genetics Institute, Inc. Excluding these items, 1992 net income was $1,370,738, and net income per common share was $2.18. Net income in 1987 excludes a provision related to Dalkon Shield claims of $1,750,000 recorded by A.H. Robins Company, Incorporated prior to its acquisition by the Company in 1989. (2) All common share and per common share amounts have been adjusted retroactively for a two-for-one common stock split effective April 23, 1996 in the form of a dividend distributed on May 6, 1996. (3) The 1994 information reflects the acquisition of American Cyanamid Company for the one month ended December 31, 1994. 18
1993 1992 1991 1990 1989 1988 1987 ---- ---- ---- ---- ---- ---- ---- $8,304,851 $7,873,687 $7,079,443 $6,775,182 $6,747,016 $6,401,454 $5,850,383 1,469,300 1,460,842 1,375,273 1,230,597 1,102,158 995,461 928,232 2.37 2.33 2.18 1.96 1.77 1.61 1.49 1.43 1.33 1.1875 1.075 0.975 0.90 0.835 $4,807,684 $4,552,077 $4,119,057 $3,826,075 $3,532,786 $3,256,494 $3,310,467 1,584,411 1,492,717 1,270,135 1,693,852 1,108,895 1,067,599 1,392,800 3.03 3.05 3.24 2.26 3.19 3.05 2.38 7,687,353 7,141,405 5,938,797 5,637,107 5,681,487 5,492,424 5,411,150 859,278 601,934 104,710 111,430 1,895,796 100,057 90,076 3,719,539 3,431,568 2,987,885 2,322,623 1,651,050 1,077,462 1,572,972 72,664 73,064 71,209 69,907 70,904 70,021 73,353 726 780 870 931 1,021 1,110 1,187 621,336 628,402 631,452 628,132 623,288 618,792 623,950 40 43 51 57 64 71 77 51,399 50,653 47,938 48,700 50,816 51,464 50,623 $1,654,984 $1,575,615 $1,388,397 $1,398,721 $1,391,233 $1,284,208 $1,171,788 396,045 367,899 300,810 312,750 256,458 245,834 215,109
19 American Home Products Corporation and Subsidiaries Consolidated Balance Sheets (In thousands except share amounts)
December 31, 1996 1995 ---- ---- Assets Cash and cash equivalents ................................................. $ 1,322,297 $ 1,802,397 Marketable securities ..................................................... 221,820 217,672 Accounts receivable less allowances (1996 - $204,121 and 1995 - $135,609) . 2,541,714 2,613,439 Inventories ............................................................... 2,389,369 2,301,953 Other current assets ...................................................... 995,219 1,050,676 ------------ ------------ Total Current Assets .................................................... 7,470,419 7,986,137 Property, plant and equipment: Land .................................................................... 184,200 174,534 Buildings ............................................................... 2,675,838 2,705,772 Machinery and equipment ................................................. 3,394,628 3,165,440 ------------ ------------ 6,254,666 6,045,746 Less accumulated depreciation ............................................. 2,217,933 2,085,411 ------------ ------------ 4,036,733 3,960,335 Goodwill and other intangibles, net of accumulated amortization (1996 - $1,597,049 and 1995 - $971,057) ................................. 8,517,610 8,649,985 Other assets .............................................................. 760,581 766,466 ------------ ------------ $ 20,785,343 $ 21,362,923 ============ ============ Liabilities Loans payable ............................................................. $ 76,574 $ 72,217 Trade accounts payable .................................................... 940,076 980,114 Accrued expenses .......................................................... 2,810,223 3,150,758 Accrued federal and foreign taxes ......................................... 510,762 353,159 ------------ ------------ Total Current Liabilities ............................................... 4,337,635 4,556,248 Long-term debt ............................................................ 6,020,575 7,808,757 Other noncurrent liabilities .............................................. 2,486,375 2,415,620 Postretirement benefit obligation other than pensions ..................... 782,342 732,063 Minority interests ........................................................ 196,324 307,237 Stockholders' Equity $2 convertible preferred stock, par value $2.50 per share; 5,000,000 shares authorized .............................................................. 79 85 Common stock, par value $0.33 1/3 per share; 1,200,000,000 shares authorized (outstanding shares: 1996 - 639,983,000 and 1995 - 627,400,000) ........................................................... 213,328 210,008 Additional paid-in capital ................................................ 2,034,337 1,515,154 Retained earnings ......................................................... 4,756,270 3,875,224 Currency translation adjustments .......................................... (41,922) (57,473) ------------ ------------ Total Stockholders' Equity .............................................. 6,962,092 5,542,998 ------------ ------------ $ 20,785,343 $ 21,362,923 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. 20 American Home Products Corporation and Subsidiaries Consolidated Statements of Income (In thousands except per share amounts)
Years Ended December 31, 1996 1995 1994 Net Sales .................................. $ 14,088,326 $ 13,376,089 $ 8,966,214 ------------ ------------ ------------ Cost of goods sold ......................... 4,449,783 4,534,320 2,795,581 Selling, general and administrative expenses 5,232,830 4,974,253 3,175,684 Research and development expenses .......... 1,429,056 1,354,963 817,090 Interest expense, net ...................... 433,034 514,920 8,756 Other income, net .......................... (96,159) (98,184) (34,354) Gains on sales of businesses ............... (813,532) (959,845) -- Special charges ............................ 697,854 436,724 -- Restructuring charges ...................... -- 180,240 173,697 ------------ ------------ ------------ 11,332,866 10,937,391 6,936,454 ------------ ------------ ------------ Income before federal and foreign taxes .... 2,755,460 2,438,698 2,029,760 Provision for taxes: Federal .................................. 437,682 401,573 249,961 Foreign .................................. 434,375 356,707 251,545 ------------ ------------ ------------ 872,057 758,280 501,506 ------------ ------------ ------------ Net Income ................................. $ 1,883,403 $ 1,680,418 $ 1,528,254 ============ ============ ============ Net Income per Share of Common Stock ....... $ 2.96 $ 2.71 $ 2.49 ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. 21 Consolidated Statements of Retained Earnings and Additional Paid-in Capital (In thousands except per share amounts)
Years Ended December 31, 1996 1995 1994 ---- ---- ---- Retained Earnings Balance, beginning of year ....................................... $ 3,875,224 $ 3,120,659 $ 2,778,803 Add: Net income .................................................. 1,883,403 1,680,418 1,528,254 ----------- ----------- ----------- 5,758,627 4,801,077 4,307,057 ----------- ----------- ----------- Less: Cash dividends declared: Preferred stock (per share: 1996 - 1994, $2.00) ................ 65 71 76 Common stock (per share: 1996 - 1994, $1.565, $1.51, $1.47) .... 993,487 934,725 903,089 ----------- ----------- ----------- 993,552 934,796 903,165 Cost of treasury stock acquired, less amounts charged to capital 10,139 6,544 272,061 ----------- ----------- ----------- 1,003,691 941,340 1,175,226 ----------- ----------- ----------- Change in unrealized gain/(loss) on marketable securities ........ 1,334 15,487 (11,172) ----------- ----------- ----------- Balance, end of year ............................................. $ 4,756,270 $ 3,875,224 $ 3,120,659 =========== =========== =========== Additional Paid-in Capital Balance, beginning of year ....................................... $ 1,515,154 $ 1,020,658 $ 1,014,911 Add: Excess over par value of common stock issued ................ 520,355 495,323 41,448 Less: Cost of treasury stock acquired, less amounts charged to retained earnings ................................... 1,172 827 35,701 ----------- ----------- ----------- Balance, end of year ............................................. $ 2,034,337 $ 1,515,154 $ 1,020,658 =========== =========== ============
The accompanying notes are an integral part of these consolidated statements. 22 Consolidated Statements of Cash Flows (In thousands)
Years Ended December 31, 1996 1995 1994 ---- ---- ---- Operating Activities Net income ........................................................ $ 1,883,403 $ 1,680,418 $ 1,528,254 Adjustments to reconcile net income to net cash provided from operating activities: Gains on sales of businesses .................................... (813,532) (959,845) (51,612) Restructuring and special charges ............................... 697,854 616,964 173,697 Gains on sales of other assets .................................. (98,809) (23,703) (42,115) Depreciation .................................................... 367,834 367,394 207,476 Amortization .................................................... 290,232 311,827 98,693 Deferred income taxes ........................................... 101,592 (145,070) (92,259) Changes in working capital, net of businesses acquired or sold: Accounts receivable .......................................... 18,675 (268,445) 13,972 Inventories .................................................. (213,037) (111,147) (157,072) Other current assets ......................................... 65,901 (102,073) (161,674) Trade accounts payable and accrued expenses .................. (354,132) (85,331) 324,795 Accrued taxes ................................................ 154,271 (110,720) 121,807 Other items, net ................................................ 298,003 342,795 (16,040) ----------- ----------- ----------- Net cash provided from operating activities ....................... $ 2,398,255 $ 1,513,064 $ 1,947,922 =========== =========== =========== Investing Activities Purchases of property, plant and equipment ........................ $ (652,226) $ (637,501) $ (472,510) Purchases of businesses for cash, net of cash acquired ............ -- (130,000) (9,356,230) Purchases of remaining equity interests in Genetics Institute, Inc. and another subsidiary ......................................... (1,326,351) -- -- Proceeds from sales of businesses ................................. 1,361,969 1,519,059 113,539 Proceeds from sales of other assets and marketable securities, net 113,816 572,830 99,742 ----------- ----------- ----------- Net cash provided from/(used for) investing activities ............ $ (502,792) $ 1,324,388 $(9,615,459) =========== =========== =========== Financing Activities Net proceeds from/(repayments of) debt ............................ $(1,783,825) $(2,205,550) $ 8,639,718 Dividends paid .................................................... (993,552) (934,796) (903,165) Purchases of treasury stock ....................................... (11,382) (7,402) (313,807) Exercise of stock options ......................................... 412,197 469,763 37,805 Other items, net .................................................. -- (58,502) (46,413) ----------- ----------- ----------- Net cash provided from/(used for) financing activities ............ (2,376,562) (2,736,487) 7,414,138 ----------- ----------- ----------- Effects of exchange rates on cash balances ........................ 999 5,228 12,769 ----------- ----------- ----------- Increase/(decrease) in cash and cash equivalents .................. (480,100) 106,193 (240,630) Cash and cash equivalents, beginning of year ...................... 1,802,397 1,696,204 1,936,834 ----------- ----------- ----------- Cash and cash equivalents, end of year ............................ $ 1,322,297 $ 1,802,397 $ 1,696,204 =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. 23 Notes to Consolidated Financial Statements 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying consolidated financial statements include the accounts of American Home Products Corporation and its majority-owned subsidiaries (the Company). The financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates made by management. Description of Business: The Company is a U.S.-based multinational corporation engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in two primary business segments: health care and agricultural products. Health care products include branded and generic ethical pharmaceuticals, biologicals, nutritionals, consumer health care products, medical devices, and animal biologicals and pharmaceuticals. Agricultural products include crop protection and pest control products such as herbicides, insecticides, fungicides and plant growth regulators. See Note 2 regarding the divestiture of a majority interest in the American Home Foods business. The Company sells its diversified line of products to wholesalers, pharmacies, hospitals, physicians, retailers and other health care institutions located in various markets in 145 countries throughout the world. The Company is not dependent on any single or major group of customers for its sales. The Company is not dependent on any one patent-protected product or line of products for a substantial portion of its sales or results of operations. However, Premarin, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and results of operations. See "Competition" in Management's Discussion and Analysis of Financial Condition and Results of Operations on page 41 for further details. Cash and Cash Equivalents, for purposes of reporting cash flows, consist primarily of certificates of deposit, time deposits and other short-term, highly liquid securities with original maturities of three months or less and are stated at cost, which approximates fair value. Marketable Securities consist of U.S. government or agency issues and corporate bonds and are stated at fair value, which approximates amortized cost. The fair values are estimated based on quoted market prices. Inventories are valued at the lower of cost or market. Inventories valued under the last-in, first-out (LIFO) method amounted to $806,661,000 at December 31, 1996 and $688,736,000 at December 31, 1995. Current value exceeded LIFO value by $63,639,000 and $66,367,000 at December 31, 1996 and 1995, respectively. The remaining inventories are valued under the first-in, first-out (FIFO) or the average cost method. Inventories at December 31 consisted of:
(In thousands) 1996 1995 ---- ---- Finished goods ....... $1,121,055 $1,142,174 Work in progress ..... 567,240 567,437 Materials and supplies 701,074 592,342 ---------- ---------- $2,389,369 $2,301,953 ---------- ----------
Property, Plant and Equipment is carried at cost. Depreciation is provided over the estimated useful lives of the related assets, principally on the straight-line method. Goodwill, the excess of cost over the fair value of net assets acquired, is being amortized on the straight-line method over various periods not exceeding 40 years. The Company continually reviews goodwill to evaluate whether changes have occurred that would suggest goodwill may be impaired based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period. If this review indicates that the remaining estimated useful life of goodwill requires revision or that the goodwill is not recoverable, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows on a discounted basis. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121 - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption of SFAS No. 121 did not have an impact on the Company's financial position or results of operations. Long-Term Debt is stated at face value, which approximates fair value. The fair value of the Company's long-term debt is estimated based on market prices. Interest Rate Swap and Foreign Currency Agreements: The Company enters into interest rate swap and foreign currency agreements to manage specifically identifiable risks. The Company does not speculate on interest or currency exchange rates. The fair value of interest rate swap and foreign currency agreements is based on market prices. The value represents the estimated amount the Company would receive/pay to terminate the agreements taking into consideration current interest or currency exchange rates. 24 Currency Translation: The majority of the Company's international operations are translated into U.S. dollars using current exchange rates with translation adjustments accumulated in stockholders' equity. Translation adjustments related to international operations in highly inflationary economies are included in net income. Net Income per Share of Common Stock is based on the average number of common shares outstanding during the year: 635,426,000 shares in 1996, 619,670,000 shares in 1995 and 614,826,000 shares in 1994. The dilutive effect of the Company's common share equivalents related to outstanding stock options was not considered in the calculations of net income per share of common stock since the effect was less than 3%. As a result, the presentation of fully diluted earnings per share is not shown. 2 ACQUISITIONS AND DIVERSTITURES In November 1994, the Company acquired substantially all the outstanding shares of American Cyanamid Company (ACY) for approximately $9.6 billion, including acquisition-related costs. The acquisition was accounted for under the purchase method of accounting and, accordingly, ACY's operating results have been included with the Company's since December 1, 1994. Based upon a final evaluation of the fair values allocated to the net assets of ACY, the purchase price exceeded the net assets acquired by approximately $8.1 billion. In addition to the ACY acquisition, the Company acquired and divested various businesses and other assets as follows: In December 1996, the Company acquired the remaining equity interest in Genetics Institute, Inc. (G.I.) that it did not already own by exercising its option to purchase the outstanding capital stock from public shareholders at $85 per share. The total consideration paid for the remaining equity interest in G.I. was $1.279 billion. The acquisition was financed through the issuance of additional commercial paper and was accounted for under the purchase method of accounting effective December 31, 1996 (see Note 3). In November 1996, the Company sold a majority interest in the American Home Foods business for approximately $1.2 billion, resulting in a pre-tax gain of $813,532,000. The net proceeds from the sale were used primarily to reduce outstanding commercial paper. Net income and net income per share for 1996 include an after-tax gain of $706,279,000 or $1.11 per share. The Company retained a 20% equity interest in the foods business and, accordingly, did not reflect the foods business as a discontinued operation. In March 1996, the Company sold Symbiosis Corp. for approximately $148,672,000, resulting in a pre-tax gain of $22,677,000. Symbiosis Corp. developed and manufactured disposable laparoscopic and endoscopic surgical products. In January 1995, the Company sold its South American oral health care business for approximately $1.0 billion, resulting in a pre-tax gain of $959,845,000. The net proceeds from the sale were used primarily to reduce outstanding commercial paper. Net income and net income per share for 1995 include an after-tax gain of $623,870,000 or $1.01 per share related to this transaction. During 1995, the Company sold certain businesses and other assets acquired in the ACY acquisition for total pre-tax proceeds aggregating $956,004,000. This activity included the sales of a preferred stock investment in Cytec Industries Inc. for $395,101,000, the medicated feed additives business for $344,500,000 and Acufex Microsurgical Inc., a manufacturer of arthroscopic instruments and scopes, for $141,000,000. Gains on the sales of these items reduced ACY acquisition-related goodwill. The Company had other acquisitions and divestitures during the 1996 - 1994 period, the effects of which, individually and in the aggregate, were not material to the Company's consolidated financial position or results of operations. 3 RESTRUCTURING AND SPECIAL CHARGES In December 1996, the Company completed a study and evaluation of the purchase price allocation related to the acquisition of the remaining equity interest in G.I. (see Note 2). The purchase price exceeded the net assets acquired by $1.057 billion, resulting in the recognition of goodwill related to the commercial operations of $359,513,000 and a special charge of $470,000,000 for the portion of the G.I. goodwill attributable to acquired in-process research and development. G.I. also recorded a special charge of $227,854,000 for the liquidation of its outstanding stock options as of December 31, 1996. The goodwill recognized in this acquisition was based on the estimated future cash flows of existing, approved products of G.I. attributed to the remaining equity interest acquired. The total special charges related to the acquisition of the remaining equity interest in G.I. were $697,854,000 or $1.10 per share. Special charges aggregating $436,724,000 ($308,317,000 after-tax or $0.50 per share) were recorded in 1995. The special charges included provisions for environmental liabilities related to ACY due to changes in estimates of $228,224,000 and provisions for other special 25 charges of $208,500,000, including the shutdown and discontinuance of the U.S. infant nutritional business and other contingent liability adjustments. In 1995, the Company recorded a restructuring charge of $180,240,000 ($117,156,000 after-tax or $0.19 per share) to recognize the costs of implementing the integration plan for the ACY acquisition related to American Home Products Corporation operations. The integration plan eliminated excess production capacity and facilities, reduced overhead and realigned the Company's resources to achieve its strategic objectives. The restructuring charge excluded costs associated with ACY personnel and facilities as these costs were included in the overall evaluation of net assets acquired from ACY. In 1994, the Company recorded a restructuring charge of $173,697,000 ($112,903,000 after-tax or $0.18 per share) to recognize the costs of consolidating the manufacturing, distribution and quality control functions for the U.S. pharmaceutical and consumer health care businesses. Since the implementation of these restructuring programs, the combined restructuring accruals have decreased by approximately $222,227,000 due to cash expenditures primarily for severance and related personnel benefits, production and administrative facility closure costs, and noncash charges to reduce the carrying value of certain assets related to manufacturing operations. Since 1994, total workforce reductions related to restructuring programs, integration plans and the discontinuance of the U.S. infant nutritional business have resulted in the elimination of approximately 9,570 positions worldwide. 4 DEBT AND FINANCING ARRANGEMENTS The Company's debt at December 31 consisted of:
(In thousands) 1996 1995 ---- ---- Commercial paper .............................. $2,997,771 $4,749,680 Notes payable: 6.875% notes due 1997 ....................... 250,000 250,000 7.70% notes due 2000 ........................ 1,000,000 1,000,000 6.50% notes due 2002 ........................ 250,000 250,000 7.90% notes due 2005 ........................ 1,000,000 1,000,000 7.25% debentures due 2023 ................... 250,000 250,000 Pollution control and industrial revenue bonds: 4.25% - 7.00% due 1997-2020 ................. 136,990 162,405 Other debt: 1.18% - 11.28% due 1997-2009 ................ 212,388 218,889 ---------- ---------- 6,097,149 7,880,974 Less current portion .......................... 76,574 72,217 ---------- ---------- $6,020,575 $7,808,757 ========== ==========
In connection with the acquisition of ACY, the Company and certain of its subsidiaries issued short-term notes (commercial paper), of which approximately $3.0 billion were outstanding at December 31, 1996. The weighted average interest rate on the commercial paper outstanding at December 31, 1996 and 1995 was 5.47% and 5.69%, respectively. The commercial paper has original maturities not exceeding 270 days and a weighted average remaining maturity of 40 days as of December 31, 1996. As of December 31, 1996, the Company has reflected the issuance of commercial paper used to finance the $1.279 billion acquisition of the remaining equity interest in G.I. The commercial paper is supported by two credit agreements established in 1994 to finance the acquisition of ACY among the Company and certain of its subsidiaries and a syndicate of lenders. The credit facilities were composed initially of a $3.0 billion, five-year credit facility and a $7.0 billion, 364-day credit facility which may be renewed annually with the consent of the majority lenders for an additional 364-day period. In 1995, the $10.0 billion of credit facilities were amended to $7.0 billion consisting of a $3.0 billion, five-year credit facility and a $4.0 billion, 364-day credit facility. In 1996, the $7.0 billion of credit facilities were amended to $6.0 billion consisting of a $3.0 billion, five-year credit facility and a $3.0 billion, 364-day credit facility. Under the terms of the 364-day credit facility, if this facility is utilized, the borrowing is extendible for another 364-day period at the option of the Company. The interest rate on borrowings under the credit facilities is based on various rate options available to the Company. The proceeds of the credit facilities may be used to support commercial paper and the Company's general corporate and working capital purposes. The credit facilities contain a financial covenant and various other customary covenants, representations, warranties, conditions and default provisions. As of December 31, 1996, there were no borrowings outstanding under the credit facilities. Commercial paper outstanding at December 31, 1996 is classified as long-term debt since the Company intends, and has the ability, to refinance these obligations through the issuance of additional commercial paper, through the use of its credit facilities or through the issuance of long-term debt. In 1995, the Company issued, under a $3.5 billion shelf registration statement, $1.0 billion of 7.70% notes due February 2000 and $1.0 billion of 7.90% notes due February 2005. Net proceeds from these issuances were used to repay commercial paper. The non-callable notes, which have semiannual interest payments due on February 15 and August 15, are unsecured and unsubordinated. The 6.875% and 6.50% non-callable notes have semiannual interest payments due on April 15 and October 15. At December 31, 1996, the 6.875% notes due April 15, 1997 are classified as long-term debt as 26 the Company has both the intent and ability to refinance these notes on a long-term basis. The 7.25% non-callable debentures have semiannual interest payments due on March 1 and September 1. The non-callable notes and debentures are unsecured and unsubordinated. The aggregate maturities of debt during the next five years as of December 31, 1996 are as follows: (In thousands) 1997 ........... $ 76,574 1998 ........... 62,708 1999 ........... 17,968 2000 ........... 1,024,874 2001 ........... 260,227 Thereafter ..... 1,657,027 ---------- 3,099,378 Commercial paper 2,997,771 ---------- Total debt ..... $6,097,149 ----------
In 1994, the Company entered into $4.75 billion notional amount of simple, unleveraged interest rate swap agreements as a means of (1) locking in the underlying U.S. treasury security rates to be paid in connection with long-term debt issued during 1995 and long-term debt expected to be issued and (2) converting a portion of the commercial paper issued in connection with the acquisition of ACY from a floating rate obligation to a fixed rate obligation. The swap agreements are contracts under which the Company pays a fixed rate of interest and receives a floating rate of interest over the term of the swap agreements without the exchange of the underlying notional amounts. During 1996, the weighted average interest rates paid and received on these agreements were 7.77% and 5.46%, respectively. The swap agreements have maturities ranging from 1997 to 2005. In 1995, the Company terminated $2.0 billion of interest rate swap agreements in connection with the $2.0 billion issuance of five- and 10-year notes as previously discussed. The effect of terminating these swap agreements was deferred and is being amortized to interest expense over the five- and 10-year terms of the related notes. In 1996, a $250,000,000 interest rate swap agreement matured and was not replaced. At December 31, 1996, the fair value of the remaining $2.5 billion of interest rate swap agreements was a payable of $113,808,000. The Company enters into short-term foreign exchange forward contracts as part of its management of foreign currency exposures. The Company does not engage in speculation on foreign currency. At December 31, 1996 and 1995, the Company had notional amounts of $724,200,000 and $458,900,000, respectively, of foreign exchange forward contracts outstanding. The notional amounts of foreign exchange forward contracts approximate fair value. The Company believes that the risk of loss associated with the interest rate or foreign currency agreements, from either non-performance by the counterparties or due to fluctuations in interest or foreign exchange rates, is not material to its financial position or results of operations. Interest payments in connection with the Company's debt obligations for the years ended December 31, 1996, 1995 and 1994 amounted to $562,733,000, $655,111,000 and $114,831,000, respectively. 5 OTHER NONCURRENT LIABILITIES Other noncurrent liabilities include reserves for contingencies relating to income taxes, environmental matters, product liability and other litigation, as well as restructuring, pension, Management Incentive Plan and other employee benefit liabilities. The Company has responsibility for environmental, safety and cleanup obligations under various local, state and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. As of December 31, 1996, the Company was a party to, or otherwise involved in, legal proceedings directed at the cleanup of 62 Superfund sites. Thirty-one of these sites are the result of acquiring ACY. It is the Company's policy to accrue environmental cleanup costs if it is probable that a liability has been incurred and an amount is reasonably estimable. In many cases, future environmental-related expenditures cannot be quantified with a reasonable degree of accuracy. Environmental expenditures that relate to an existing condition caused by past operations that do not contribute to current or future results of operations are expensed. As investigations and cleanups proceed, environmental-related liabilities are reviewed and adjusted as additional information becomes available. The aggregate environmental-related accruals were $447,050,000 #and $467,800,000 at December 31, 1996 and 1995, respectively. As discussed in Note 3, during 1995, a provision of $228,224,000 was recorded for environmental liabilities related to ACY due to changes in estimates. Environmental-related accruals have been recorded without giving effect to any possible future insurance proceeds or the timing of the payments. See Note 11 for a discussion of contingencies. During 1996, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 96-1 - "Environmental Remediation Liabilities." This SOP provides additional guidance regarding the recognition, measurement and disclosure of environmental remediation liabilities and is effective for fiscal years beginning after December 15, 1996. The SOP will not have a material impact on the Company's financial position or results of operations. 27 The Company's Management Incentive Plan provides for cash and deferred contingent common stock awards to key employees. The maximum number of shares of common stock issuable under the plan is 24,000,000, of which 18,008,495 have been awarded through December 31, 1996. Deferred contingent common stock awards plus accrued dividends totaling 857,774 shares were outstanding at December 31, 1996. Awards for 1996 were $60,306,185, which included deferred contingent common stock of $12,283,465 (205,581 shares). Awards for 1995 amounted to $52,909,000, which included deferred contingent common stock of $10,197,000 (212,542 shares). Total participants in the plan increased to 2,360 employees in 1995 versus 1,429 in 1994 due primarily to the addition of ACY participants. Awards for 1994 were $35,842,000, which included deferred contingent common stock of $6,513,000 (204,796 shares). 6 EMPLOYEE BENEFIT PLANS Pension Plans: The Company sponsors various retirement plans for most full-time employees. Total pension expense for 1996, 1995 and 1994 was $130,090,000, $139,329,000 and $90,395,000, respectively. The Company sponsors defined benefit and defined contribution plans for most domestic and certain foreign locations. Pension plan benefits for defined benefit plans are based primarily on participants' compensation and years of credited service. It has been the Company's policy to fund all current and prior year service costs under defined benefit retirement plans. Contributions to defined contribution plans are based on a percentage of employees' compensation. Pension expense recognized for defined contribution plans totaled $76,143,000 in 1996, $64,682,000 in 1995 and $43,029,000 in 1994. Net periodic pension cost of defined benefit pension plans was as follows (principally U.S. pension plans):
(In thousands) 1996 1995 1994 ---- ---- ---- Service cost on benefits earned during the year ............. $ 58,434 $ 55,283 $ 35,642 Interest cost on projected benefit obligation .......... 194,056 180,859 69,598 Actual (return)/loss on plan assets ...................... (240,809) (490,286) 62,498 Net amortization and deferral . 42,266 328,791 (120,372) --------- --------- --------- Net periodic pension cost ..... $ 53,947 $ 74,647 $ 47,366 ========= ========= =========
Net periodic pension cost was lower in 1996 compared with 1995 due primarily to the unusually high actual return on plan assets in 1995, offset, in part, by an increase in pension costs related to a change in mortality assumptions to reflect increased life expectancies. Net periodic pension cost was higher in 1995 versus 1994 due primarily to the ACY acquisition effective December 1, 1994. The actuarial present value of benefit obligations and funded status of the Company's defined benefit pension plans, as of December 31, was as follows (principally U.S. pension plans):
(In thousands) 1996 1995 ---- ---- Benefit obligations: Vested benefits .................. $ 2,479,139 $ 2,126,995 Nonvested benefits ............... 110,482 85,840 ----------- ----------- Accumulated benefit obligation ..... 2,589,621 2,212,835 Effect on benefits from projected compensation increases ........... 268,923 244,943 ----------- ----------- Projected benefit obligation ....... 2,858,544 2,457,778 Plan assets at fair value, primarily listed stocks and bonds .......... 2,332,432 2,281,772 ----------- ----------- Projected benefit obligation in excess of plan assets ............ 526,112 176,006 Unrecognized net gain/(loss) ....... (55,013) 171,404 Unrecognized net transition obligation ....................... (3,827) (5,499) Unrecognized prior service cost .... (134,064) 5,925 ----------- ----------- Net pension liability .............. $ 333,208 $ 347,836 ----------- -----------
The change in the unrecognized net gain (loss) in 1996 is due primarily to an unrecognized loss resulting from a change in mortality assumptions to reflect increased life expectancies. The change in the unrecognized prior service cost in 1996 is due primarily to a plan amendment which revised the benefit formula of the American Home Products Corporation Retirement Plan - U.S., from a final 10-year average to an average of the five highest paid years within the final 10 years of service. Assumptions used in developing the projected benefit obligation as of December 31 were as follows:
1996 1995 1994 ---- ---- ---- Discount rate .................. 7.5% 7.5% 8.5% Rate of increase in compensation 4.0% 4.0% 5.0% Rate of return on plan assets .. 9.0% 9.0% 8.5%-9.0%
28 Postretirement Benefits: The Company provides postretirement health care and life insurance benefits for retired employees of most domestic locations and Canada. Most full-time employees become eligible for these benefits after attaining specified age and service requirements. Net periodic postretirement health care cost includes the following components:
(In thousands) 1996 1995 1994 ---- ---- ---- Service cost on benefits earned during the year ... $20,474 $15,057 $13,447 Interest cost on accumulated postretirement benefit obligation (APBO) ........ 68,902 61,693 31,612 Net amortization ........... 4,436 290 6,016 ------- ------- ------- Net periodic postretirement health care cost ......... $93,812 $77,040 $51,075 ======= ======= =======
Net periodic postretirement health care cost was higher in 1996 compared with 1995 due primarily to a change in mortality assumptions to reflect increased life expectancies. Net periodic postretirement health care cost was higher in 1995 versus 1994 due primarily to the ACY acquisition effective December 1, 1994. The APBO as of December 31 was as follows:
(In thousands) 1996 1995 ---- ---- Retirees ...................... $ 648,763 $ 540,404 Fully eligible active participants ................ 124,131 118,505 Other active participants ..... 209,278 164,500 --------- --------- APBO .......................... 982,172 823,409 Unrecognized net loss ......... (141,510) (33,300) Unrecognized prior service cost (3,320) (3,046) --------- --------- Accrued postretirement benefit obligation .......... 837,342 787,063 Less current portion .......... 55,000 55,000 --------- --------- $ 782,342 $ 732,063 ========= =========
The change in the unrecognized net loss in 1996 is due primarily to an unrecognized loss from a change in mortality assumptions to reflect increased life expectancies, offset by an unrecognized gain from a revision in the health care cost trend rate and a plan curtailment gain related to the sale of a majority interest in the foods business. Assumptions used in developing the APBO were as follows:
1996 1995 1994 ---- ---- ---- Discount rate ............. 7.5% 7.5% 8.5% Increase in per capita cost of health care benefits that gradually decreases over 10 years and is held constant thereafter ..... 9.0%-6.0% 10.0%-6.0% 10.5%-6.0%
A one percentage point increase in the assumed health care cost trend rates would increase the APBO as of December 31, 1996 by approximately $125,810,000, and the total of the service and interest cost components of the net periodic postretirement health care cost would increase by approximately $13,596,000. 7 CAPITAL STOCK At the Company's April 23, 1996 Annual Meeting of Stockholders, the stockholders approved an increase in the number of authorized shares of common stock from 600,000,000 to 1,200,000,000, enabling the Company to complete a two-for-one stock split in the form of a 100% stock dividend which was approved by the Company's Board of Directors in January 1996. The record date for stockholders entitled to receive additional shares, which were distributed on May 6, 1996, was the close of business on April 24, 1996. The par value of the common stock was maintained at the pre-split amount of $0.33 1/3 per share. All references to common stock, retained earnings, common shares outstanding and per share amounts in these consolidated financial statements have been restated to reflect the two-for-one stock split on a retroactive basis. There were 5,000,000 shares of preferred stock authorized at December 31, 1996. Of the authorized preferred shares, there is a series of shares (31,433 outstanding), which is designated as $2 convertible preferred stock. Each share of the $2 series is convertible at the option of the holder into 18 shares of common stock. This series may be called for redemption at $60 per share plus accrued dividends. 29 Changes in outstanding common shares during 1996, 1995 and 1994 are summarized as follows:
(In thousands except shares of preferred stock) 1996 1995 1994 ---- ---- ---- Balance, beginning of year ... 627,400 611,962 620,652 Issued for stock options and Management Incentive Plan ............. 12,746 15,584 1,916 Conversions of preferred stock (2,709, 2,371 and 3,624 shares in 1996, 1995 and 1994, respectively) .... 49 42 66 Purchase of shares for treasury ............... (212) (188) (10,672) ------- ------- ------- Balance, end of year ......... 639,983 627,400 611,962 ======= ======= =======
8 STOCK OPTIONS The Company has three Stock Option Plans and three Stock Incentive Plans, including the 1996 Stock Incentive Plan which was approved at the Company's April 23, 1996 Annual Meeting of Stockholders. Under the three Stock Incentive Plans, a maximum of 30,000,000, 28,000,000 and 24,000,000 options to purchase shares, respectively, may be granted at prices not less than 100% of the fair market value at the date of option grant. No further grants will be made under the three Stock Option Plans. At December 31, 1996, 28,137,620 shares were available for future grants under the Stock Incentive Plans. The plans provide for the granting of incentive stock options as defined under the Internal Revenue Code. Under the plans, grants may be made to selected officers and employees of non-qualified stock options with a 10-year term or incentive stock options with a term not exceeding 10 years. The plans provide for the granting of stock appreciation rights (SAR), which permit the optionee to surrender an exercisable option for an amount equal to the excess of the market price of the common stock over the option price when the right is exercised. During 1996 and 1995, SARs were granted to executive officers in tandem with outstanding and newly granted stock options at the exercise price of the underlying option. A pre-tax charge of $54,815,000 and $62,716,000 was incurred related to SARs in 1996 and 1995 due to an increase in the market price of the Company's common stock and the increased number of outstanding SARs. The charge incurred related to SARs in 1994 was not material. SARs in tandem with options covering 4,574,400 and 2,096,866 shares were outstanding and exercisable, respectively, at December 31, 1996. The stock incentive plans, among other things, provide for the issuance of up to 4,000,000 of the available options as restricted stock performance awards under each plan. Restricted stock performance awards representing 53,500, 52,200 and 108,800 units were granted in 1996, 1995 and 1994, respectively, under the plans to certain key executives. These units will be converted to shares of restricted stock based on the achievement of certain performance criteria over a three-year period of restriction. Transactions involving the plans are summarized as follows:
Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Option Shares 1996 Price 1995 Price 1994 Price ---- ----- ---- ----- ---- ----- Outstanding January 1 ..... 47,486,784 $ 34.12 42,936,064 $ 30.23 42,681,848 $ 30.06 Granted ................... 7,970,950 53.16 20,839,500 38.33 3,968,100 29.10 Canceled .................. (1,117,450) 42.92 (817,080) 35.74 (1,942,760) 32.61 Exercised (1996 - $17.80 to $53.06 per share) ........ (14,200,939) 32.95 (15,471,700) 28.92 (1,771,124) 21.43 Outstanding December 31 (1996 - $17.80 to $62.70 per share) ........ 40,139,345 38.07 47,486,784 34.12 42,936,064 30.23 Exercisable December 31 ... 30,492,611 34.27 27,203,484 30.97 38,758,564 30.33
30 The following table summarizes information regarding stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable - --------------------------------------------------------------------------- ----------------------------------- Weighted Average Weighted Average Weighted Average Range of Number Remaining Exercise Number Exercise Exercise Prices Outstanding Contractual Life Price Exercisable Price - --------------------------------------------------------------------------- ----------------------------------- $17.80 to 26.78 2,717,869 2.5 years $23.76 2,717,869 $23.76 26.79 to 35.76 12,798,845 6.3 years 31.81 12,798,845 31.81 35.77 to 44.74 16,518,631 8.1 years 38.10 14,626,997 38.09 44.75 to 53.72 8,014,900 9.4 years 52.58 348,900 46.04 53.73 to 62.70 89,100 9.9 years 62.69 -- -- ---------- ---------- 17.80 to 62.70 40,139,345 7.4 years 38.07 30,492,611 34.27 ========== ==========
In April 1994, the stockholders approved the Restricted Stock Plan for Non-Employee Directors. Under the plan, a maximum of 50,000 restricted shares may be granted to non-employee directors at not less than 100% of the fair market value at the date of grant. The restricted shares will not be delivered until the end of the restricted period which does not exceed five years. Effective January 1, 1996, the Company adopted the provisions of SFAS No. 123 - "Accounting for Stock-Based Compensation." As permitted by the statement, the Company has elected to continue to account for stock-based compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense has been recognized for stock options other than for SARs granted in tandem with stock options. If compensation expense for the Company's stock options issued in 1996 and 1995 had been determined based on the fair value method of accounting, as defined in SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
(In thousands except per share amounts) 1996 1995 - -------------------------------------------------------------------------------- Net income As reported $ 1,883,403 $ 1,680,418 Pro forma $ 1,841,157 $ 1,647,085 Net income per share As reported $ 2.96 $ 2.71 Pro forma $ 2.90 $ 2.66 ---------------------------------
The fair value method of accounting has not been determined for options granted prior to January 1, 1995. The fair value of issued stock options is estimated on the date of grant using the Black-Scholes option-pricing model incorporating the following assumptions for options granted in 1996 and 1995, respectively: Expected volatility (the amount by which the stock price is expected to fluctuate) of 15.0% and 15.7%; expected dividend yield of 4.3% and 4.4%; risk-free interest rate of 6.4% and 6.1%; and expected life of four years. The weighted average fair value of options granted during 1996 and 1995 was $6.83 and $4.88, respectively. 9 INTEREST EXPENSE, NET Interest expense, net in the Consolidated Statements of Income includes interest income of $138,380,000, $150,101,000 and $106,430,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 31 10 INCOME TAXES The provision for income taxes consisted of:
(In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Current: Domestic $ 348,649 $ 545,434 $ 351,581 Foreign 421,816 357,916 242,184 ------------------------------------------------ 770,465 903,350 593,765 Deferred: Domestic 89,033 (143,861) (101,620) Foreign 12,559 (1,209) 9,361 ------------------------------------------------ 101,592 (145,070) (92,259) ------------------------------------------------ $ 872,057 $ 758,280 $ 501,506 ===============================================
Deferred tax assets (liabilities), inclusive of valuation allowances for certain deferred tax assets, were reflected in the consolidated balance sheets at December 31 as follows:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Net current deferred tax assets $ 668,215 $ 638,291 Net noncurrent deferred tax assets 303,034 374,839 ----------------------------- Net deferred tax assets $ 971,249 $1,013,130 =============================
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred tax assets result principally from the recording of certain accruals and reserves which currently are not deductible for tax purposes. Deferred tax liabilities result principally from temporary differences in the recognition of gains and losses from certain investments and from the use, for tax purposes, of accelerated depreciation. The components of the Company's deferred tax assets and liabilities at December 31 are as follows:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets: Product and environmental liabilities and other operating accruals $ 700,736 $ 675,180 Postretirement, pension and other employee benefits 451,431 478,177 Net operating loss and other tax credit carryforwards 203,464 125,950 Restructuring and reorganization accruals 225,644 346,927 Inventory reserves 178,505 131,657 Investments and advances 60,123 54,402 Other 42,123 67,757 ------------------------------ Total deferred tax assets $ 1,862,026 $ 1,880,050 ------------------------------ Deferred tax liabilities: Investments $ (249,573) $ (228,394) Depreciation (268,875) (315,124) Pension and other employee benefits (17,566) (65,218) Other (59,923) (51,540) ------------------------------ Total deferred tax liabilities $ (595,937) $ (660,276) ------------------------------ Deferred tax asset valuation allowance (294,840) (206,644) ------------------------------ Net deferred tax assets $ 971,249 $ 1,013,130 ------------------------------
Valuation allowances have been established for certain deferred tax assets related primarily to net operating loss carryforwards and portions of other deferred tax assets as the Company determined that it was more likely than not that these benefits will not be realized. During 1996, the valuation allowance increased by $88,196,000 due primarily to additional allowances related to net operating loss carryforwards resulting from the Company's acquisition of the remaining equity interest in G.I. that it did not already own (see Note 2). During 1995, the valuation allowance decreased by $44,332,000 due primarily to the reversal of allowances of $89,936,000 on investments which were sold during the year. These decreases were offset partially by additional allowances of $45,604,000 for deferred tax assets related primarily to net operating loss carryforwards. During 1994, the valuation allowance increased by $159,613,000 as reductions in these reserves of $68,929,000 were more than offset by increases of $228,542,000 as a result of the ACY acquisition. 32 A reconciliation between the Company's effective tax rate and the U.S. statutory rate is as follows:
Tax Rate 1996 1995 1994 - -------------------------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% Effect of Puerto Rico and Ireland manufacturing operations (5.6) (6.4) (5.5) Research credits (0.6) (0.6) (1.2) ACY goodwill amortization 2.8 3.3 -- Gain on sale of foods business (6.4) -- -- Special charges related to the acquisition of G.I. 8.5 -- -- Other, net (2.1) (0.2) (3.6) -------------------------------- Effective tax rate 31.6% 31.1% 24.7% --------------------------------
The tax effect related to the gain on the sale of the foods business was due to basis differences for tax and financial reporting purposes. No tax benefit was recorded with regard to the G.I. special charges due to the non-deductibility of the acquired in-process research and development and the uncertainty of the realizability of G.I. net operating loss carryforwards. The higher effective tax rate in 1995 versus 1994 was due primarily to nondeductible goodwill amortization related to the ACY acquisition and the reversal of certain tax reserves that no longer were deemed necessary in 1994. Total income tax payments, net of tax refunds, for the years ended December 31, 1996, 1995 and 1994 amounted to $435,069,000, $992,393,000 and $536,854,000, respectively. 11 CONTINGENCIES The Company is involved in various legal proceedings, including product liability and environmental matters of a nature considered normal to its business. See Note 5 for a discussion of environmental matters. It is the Company's policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable. The Company entered into an agreement to settle the class action case in the Brand Name Prescription Drug Antitrust Litigation relating to claims made by certain retail pharmacies against the Company. An appeal of the settlement has been filed, and the Company continues to be a defendant in the remaining cases in this litigation. The Company believes it has complied with the antitrust laws and other applicable laws and has settled this matter in order to avoid the costs and risks of litigation. The settlement agreement is not an admission of any violation of law. The Company had accrued for the costs of this settlement at December 31, 1995. The Company is self-insured against ordinary product liability risks and has liability coverage in excess of certain limits from various insurance carriers. In the opinion of the Company, although the outcome of any legal proceedings cannot be predicted with certainty, the ultimate liability of the Company in connection with these proceedings will not have a material adverse effect on the Company's financial position but could be material to the results of operations in any one accounting period. The Company leases certain property and equipment for varying periods under operating leases. Future minimum rental payments under non-cancelable operating leases with terms in excess of one year in effect at December 31, 1996 are as follows:
(In thousands) - -------------------------------------------------------------------------------- 1997 $ 95,403 1998 84,790 1999 76,334 2000 58,668 2001 43,966 Thereafter 50,009 -------- Total rental commitments $409,170 ========
Rental expense for all operating leases was $100,790,000 in 1996, $97,036,000 in 1995 and $50,736,000 in 1994. 33 12 COMPANY DATA BY INDUSTRY SEGMENT
(In millions) Years Ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------- NET SALES TO CUSTOMERS - ---------------------------------------------------------------------------------------- Health Care Products: Pharmaceuticals $ 7,924.0 $ 7,521.2 $ 5,180.8 Consumer Health Care 2,054.6 1,994.8 1,821.2 Medical Devices 1,331.5 1,131.4 883.6 -------------------------------------------- 11,310.1 10,647.4 7,885.6 Agricultural Products 1,988.9 1,909.8 83.3 Food Products 789.3 818.9 997.3 -------------------------------------------- Consolidated Total $ 14,088.3 $ 13,376.1 $ 8,966.2 -------------------------------------------- INCOME BEFORE TAXES - ---------------------------------------------------------------------------------------- Health Care Products(4)(5)(6)(7) $ 2,770.4 $ 1,989.3 $ 1,828.9 Agricultural Products 337.7 272.5 8.7 Food Products 129.1 66.5 155.6 Corporate(1)(2)(3)(5)(7) (481.7) 110.4 36.6 -------------------------------------------- Consolidated Total $ 2,755.5 $ 2,438.7 $ 2,029.8 -------------------------------------------- TOTAL ASSETS AT DECEMBER 31, - ---------------------------------------------------------------------------------------- Health Care Products $ 12,902.6 $ 12,584.8 $ 13,026.2 Agricultural Products 4,727.5 4,671.2 4,616.1 Food Products -- 485.9 558.8 Corporate 3,155.2 3,621.0 3,473.7 -------------------------------------------- Consolidated Total $ 20,785.3 $ 21,362.9 $ 21,674.8 -------------------------------------------- DEPRECIATION AND AMORTIZATION EXPENSE - ---------------------------------------------------------------------------------------- Health Care Products $ 483.6 $ 488.2 $ 258.7 Agricultural Products 145.5 141.0 14.7 Food Products 15.2 23.8 19.1 Corporate 13.8 26.2 13.7 -------------------------------------------- Consolidated Total $ 658.1 $ 679.2 $ 306.2 -------------------------------------------- CAPITAL EXPENDITURES - ---------------------------------------------------------------------------------------- Health Care Products $ 545.5 $ 521.4 $ 424.4 Agricultural Products 48.6 52.1 6.3 Food Products 9.2 26.4 35.5 Corporate 48.9 37.6 6.3 -------------------------------------------- Consolidated Total $ 652.2 $ 637.5 $ 472.5 --------------------------------------------
COMPANY DATA BY GEOGRAPHIC SEGMENT
(In millions) Years Ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------- NET SALES TO CUSTOMERS - ---------------------------------------------------------------------------------------- United States $ 8,334.9 $ 7,878.1 $ 5,908.0 Europe and Africa 3,212.4 3,085.6 1,422.7 Canada and Latin America 1,333.3 1,291.8 1,022.4 Asia and Australia 1,207.7 1,120.6 613.1 -------------------------------------------- Consolidated Total $ 14,088.3 $ 13,376.1 $ 8,966.2 -------------------------------------------- INCOME BEFORE TAXES - ---------------------------------------------------------------------------------------- United States(1)(2)(3)(4)(5)(6)(7) $ 1,447.2 $ 681.8 $ 1,353.0 Europe and Africa(4) 831.2 526.7 295.7 Canada and Latin America(3)(4) 294.0 1,080.8 269.1 Asia and Australia(4) 183.1 149.4 112.0 -------------------------------------------- Consolidated Total $ 2,755.5 $ 2,438.7 $ 2,029.8 -------------------------------------------- TOTAL ASSETS AT DECEMBER 31, - ---------------------------------------------------------------------------------------- United States $ 13,730.1 $ 14,746.0 $ 14,794.5 Europe and Africa 4,279.8 3,894.2 4,098.6 Canada and Latin America 1,506.0 1,547.4 1,517.5 Asia and Australia 1,269.4 1,175.3 1,264.2 -------------------------------------------- Consolidated Total $ 20,785.3 $ 21,362.9 $ 21,674.8 --------------------------------------------
(1) 1996 includes the gain on the sale of a majority interest in the foods business of $813.5 identified as follows: Corporate - $813.5 and United States - $813.5 (see Note 2). (2) 1996 includes special charges of $697.9 identified as follows: Corporate - $697.9 and United States - $697.9 (see Note 3). (3) 1995 includes the gain on the sale of the South American oral health care business of $959.8 identified as follows: Corporate - $959.8, United States - $144.9, Canada and Latin America - $814.9 (see Note 2). (4) 1995 includes the restructuring charge of $180.2 identified as follows: Health Care Products - $180.2, United States - $66.2, Europe and Africa - $100.3, Canada and Latin America - $9.1, Asia and Australia - $4.6 (see Note 3). (5) 1995 includes special charges of $436.7 identified as follows: Health Care Products - $208.5, Corporate - $228.2, United States - $436.7 (see Note 3). (6) 1994 includes the restructuring charge of $173.7 identified as follows: Health Care Products - $173.7 and United States - $173.7 (see Note 3). (7) 1994 includes gains on sales of assets of $75.8 identified as follows: Health Care Products - $32.8, Corporate - $43.0, United States - $75.8. Certain reclassifications have been made to the 1995 industry and geographic segment information to conform with the 1996 presentation. 34 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of American Home Products Corporation: We have audited the accompanying consolidated balance sheets of American Home Products Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, retained earnings, additional paid-in capital and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Home Products Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP New York, N.Y. January 28, 1997 MANAGEMENT REPORT ON FINANCIAL STATEMENTS Management has prepared and is responsible for the Company's consolidated financial statements and related notes. They have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates made by management. All financial information in this Annual Report is consistent with the financial statements. The Company maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and are properly recorded, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The design, monitoring and revision of internal accounting control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. The Company also maintains an internal auditing function which evaluates and formally reports on the adequacy and effectiveness of internal accounting controls, policies and procedures. The Company's financial statements have been audited by independent auditors who have expressed their opinion with respect to the fairness of these statements. The Audit Committee of the Board of Directors, composed of non-employee directors, meets periodically with the external and internal auditors to evaluate the effectiveness of the work performed by them in discharging their respective responsibilities and to assure their independent and free access to the Committee. John R. Stafford Robert G. Blount Chairman, President and Senior Executive Vice Chief Executive Officer President and Chief Financial Officer 35 QUARTERLY FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter (In thousands except per share amounts) 1996 1996 1996 1996 - ----------------------------------------------------------------------------------------------------------------- Net Sales $3,646,814 $3,489,821 $3,470,922 $3,480,769 Gross Profit 2,440,860 2,327,189 2,411,972 2,458,522 Net Income 489,363 391,277 491,125 511,638(1) Net Income per Common Share 0.78 0.62 0.77 0.80(1) - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter 1995 1995 1995 1995 - ----------------------------------------------------------------------------------------------------------------- Net Sales $3,491,029 $3,299,300 $3,257,789 $3,327,971 Gross Profit 2,246,001 2,092,552 2,187,197 2,316,019 Net Income 1,022,620(2) 299,608 276,526(3) 81,664(4) Net Income per Common Share 1.67(2) 0.49 0.45(3) 0.13(4) - -----------------------------------------------------------------------------------------------------------------
(1) Fourth quarter 1996 includes an after-tax gain of $706,279 ($1.10 per share) on the sale of a majority interest in the American Home Foods business and special charges aggregating $697,854 ($1.09 per share) related to the acquisition of the remaining equity interest in Genetics Institute, Inc. (2) First quarter 1995 includes an after-tax gain of $623,870 ($1.01 per share) on the sale of the South American oral health care business. (3) Third quarter 1995 includes an after-tax restructuring charge of $117,156 ($0.19 per share) to record the costs of implementing the integration plan for the American Cyanamid Company (ACY) acquisition related to American Home Products Corporation operations. (4) Fourth quarter 1995 includes after-tax special charges of $308,317 ($0.49 per share) to record provisions for ACY environmental liabilities due to changes in estimates and provisions for other special charges, including the shutdown and discontinuance of the U.S. infant nutritional business. MARKET PRICES OF COMMON STOCK AND DIVIDENDS
1996 Range of Prices* 1995 Range of Prices* - ------------------------------------------------------------------------------------------------------------------------------ Dividends Dividends High Low per Share High Low per Share - ------------------------------------------------------------------------------------------------------------------------------ First Quarter $55.25 $47.06 $0.385 $38.19 $30.88 $0.375 Second Quarter 56.13 50.00 0.385 39.88 35.75 0.375 Third Quarter 64.88 52.63 0.385 43.75 36.82 0.375 Fourth Quarter 66.50 58.63 0.410 49.94 41.75 0.385 - ------------------------------------------------------------------------------------------------------------------------------
* Prices are those of the New York Stock Exchange - Composite Transactions. All amounts reflect the two-for-one common stock split effective April 23, 1996 in the form of a dividend distributed on May 6, 1996. 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following commentary should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements on pages 20 to 34. RESULTS OF OPERATIONS Management's discussion and analysis of results of operations for 1996 has been presented on an as-reported basis except for sales variation explanations which are presented on an as-reported and a pro forma basis. The 1996 pro forma sales results reflect all businesses disposed of, discontinued and acquired in 1996 and 1995, assuming all transactions occurred as of January 1, 1995. This activity includes the dispositions of the foods business, the medicated feed additives business, the oral health care business and a surgical products business, the discontinuance of the U.S. infant nutritional business and the acquisition of an animal health care business. The 1996 pro forma sales results also include revenues of the ophthalmic products business which was reported as "held for sale" in 1995. Management's discussion and analysis of results of operations for 1995 has been presented for the most part on a pro forma basis only. The 1995 pro forma sales results reflect all businesses acquired and disposed of in 1995 and 1994, assuming all transactions occurred as of January 1, 1994. This activity includes the acquisitions of American Cyanamid Company (ACY) and an animal health care business and the dispositions of two medicated feed additives businesses, the oral health care business and a perinatal monitoring systems business. The 1994 pro forma results of operations reflect the impact of adjustments for ACY acquisition interest expense and goodwill amortization, merger-related financing costs and related income tax benefits, assuming the acquisition of ACY occurred as of January 1, 1994. The 1994 pro forma results are not necessarily indicative of what actually would have occurred and do not reflect any integration costs, cost savings from merger-related synergies or results of operations of other businesses acquired or disposed of in 1995 and 1994. Net sales increased 5% to $14.1 billion in 1996 on an as-reported basis. On a pro forma basis, net sales increased 7%. The pro forma results reflect higher worldwide sales of pharmaceutical, consumer health care and agricultural products. The increase in 1996 sales was composed of volume increases of 6% and price increases of 2%, offset by unfavorable foreign exchange of 1%. Worldwide pro forma sales of health care products increased 7% and agricultural products increased 4% in 1996. Net sales increased 49% to $13.4 billion in 1995 on an as-reported basis. On a pro forma basis, net sales increased 4% for the year ended 1995. The pro forma results reflect higher sales of international health care and worldwide agricultural products, offset partially by lower sales of domestic food and health care products. The increase in 1995 sales was composed of volume increases of 2%, price increases of 1% and favorable foreign exchange of 1%. Worldwide sales of health care products increased 4%, agricultural products increased 18% and food products decreased 18% in 1995. 37 The following table sets forth 1996, 1995 and 1994 net sales results by industry segment and geographic segment together with percentage changes of the "As-Reported" and "Pro Forma" net sales:
1996 versus 1995 1995 versus 1994 As-Reported Pro Forma As-Reported Pro Forma ($ in Millions) Year Ended December 31, %Increase %Increase %Increase %Increase ---------------------------------- Net Sales to Customers 1996 1995 1994 (Decrease) (Decrease) (Decrease) (Decrease) - ------------------------------------------------------------------------------------------------------------------------------- Industry Segment Health Care Products: Pharmaceuticals $ 7,924.0 $ 7,521.2 $5,180.8 5% 9% 45% 4% Consumer Health Care 2,054.6 1,994.8 1,821.2 3% 5% 10% 4% Medical Devices 1,331.5 1,131.4 883.6 18% -- 28% 3% ---------------------------------- Total Health Care Products 11,310.1 10,647.4 7,885.6 6% 7% 35% 4% Agricultural Products 1,988.9 1,909.8 83.3 4% 4% -- 18% Food Products 789.3 818.9 997.3 (4)% -- (18)% (18)% ---------------------------------- Consolidated Net Sales $14,088.3 $ 13,376.1 $8,966.2 5% 7% 49% 4% ---------------------------------- Geographic Segment United States $ 8,334.9 $ 7,878.1 $5,908.0 6% 7% 33% (3)% Europe and Africa 3,212.4 3,085.6 1,422.7 4% 4% 117% 19% Canada and Latin America 1,333.3 1,291.8 1,022.4 3% 8% 26% 3% Asia and Australia 1,207.7 1,120.6 613.1 8% 10% 83% 23% ---------------------------------- Consolidated Net Sales $14,088.3 $13,376.1 $8,966.2 5% 7% 49% 4% ----------------------------------
Worldwide pharmaceutical sales increased 5% for the year ended 1996. U.S. pharmaceutical sales increased 7% for the year ended 1996. U.S. sales gains were offset, in part, by lower sales of veterinary and infant nutritional products resulting from the sale of the medicated feed additives business in 1995 and the discontinuance of the U.S. infant nutritional business in 1996. After adjusting for the effects of businesses disposed of, discontinued and acquired in 1996 and 1995, U.S. pharmaceutical sales increased 11% for the year ended 1996. The sales gains were due primarily to higher sales of the Company's antiobesity products Pondimin and Redux (introduced in 1996), Premarin products, recombinant Factor VIII, Naprelan (introduced in 1996), Cordarone, Ziac, Lodine, Effexor and veterinary products, offset, in part, by lower sales of other cardiovascular and pharmaceutical products. The pro forma increase in U.S. pharmaceutical sales for the year ended 1996 consisted of unit volume growth of 9% and price increases of 2%. International pharmaceutical sales increased 3% for the year ended 1996. International sales gains were impacted by lower sales of veterinary products resulting from the sale of the medicated feed additives business in 1995. After adjusting for the effects of businesses disposed of and acquired in 1995, international pharmaceutical sales increased 6% for the year ended 1996. International pharmaceutical sales gains in 1996 were due primarily to higher sales of Zoton, Effexor, veterinary products, infant nutritionals, Tazocin and Premarin products. Launches of several pharmaceutical products in additional international markets, in particular Effexor, contributed to the international sales increases in 1996. The pro forma increase in international pharmaceutical sales for the year ended 1996 consisted of unit volume growth of 8%, offset by unfavorable foreign exchange of 2%. Worldwide pharmaceutical sales increased 4% on a pro forma basis for the year ended 1995. U.S. pharmaceutical sales decreased 1% for the year ended 1995 as higher sales of Effexor, Oruvail, Ziac, Cordarone and Premarin products were offset by lower sales of Ativan, oral contraceptives, infant nutritionals, veterinary products, and Lederle antibiotic and generic products. U.S. pharmaceutical sales reflect the impact of a change in timing of trade incentive programs on Wyeth-Ayerst products in the 1995 second quarter, which affected all major Wyeth-Ayerst product categories. The decrease in U.S. pharmaceutical sales in 1995 was composed of unit volume decreases of 1%. International pharmaceutical sales increased 12% for the year ended 1995 due primarily to higher sales of oral contraceptives, Tazocin, Premarin, infant nutritionals, Ativan, Effexor and veterinary products. The increase in international pharmaceutical sales in 1995 was composed of unit volume increases of 7%, price increases of 2% and favorable foreign exchange of 3%. 38 Worldwide consumer health care sales increased 3% for the year ended 1996. U.S. consumer health care sales increased 2% for the year ended 1996. U.S. sales gains for the year ended 1996 were due primarily to introductory sales of Axid AR, Children's Advil and Orudis KT and higher sales of Centrum, offset, in part, by lower sales of Advil, Anacin and family planning products. The increase in U.S. consumer health care sales for the year ended 1996 consisted of price increases of 2%. International consumer health care sales increased 6% for the year ended 1996. After adjusting for the effect of the sale of the South American oral health care business in 1995, international consumer health care sales increased 12% for the year ended 1996. International sales gains were due primarily to higher sales of Centrum (which was launched in additional international markets), Advil, cough/cold products and other consumer health care products. The pro forma increase in international consumer health care sales for the year ended 1996 consisted of unit volume growth of 11% and price increases of 4%, offset by unfavorable foreign exchange of 3%. Worldwide consumer health care sales increased 4% on a pro forma basis for the year ended 1995. U.S. consumer health care sales for the year ended 1995 were comparable to 1994 levels as introductory sales of Orudis KT and higher sales of Centrum and other vitamins were offset by lower sales of Advil and Anacin. The decrease in Advil and Anacin sales was due to a combination of increased competition and the timing and extent of trade incentive programs and promotional efforts. U.S. consumer health care sales in 1995 included volume decreases of 1%, offset by price increases of 1%. International consumer health care sales increased 13% for the year ended 1995 due principally to higher sales of vitamins, analgesics and cough/cold products. Sales gains in the international consumer health care market were led by higher sales of Centrum, Advil and Anacin. Higher sales of Robitussin and Dimetapp also contributed to the increase. The increase in international consumer health care sales in 1995 was composed of unit volume increases of 5% and price increases of 8%. Worldwide medical devices sales increased 18% for the year ended 1996 due primarily to the Storz ophthalmic products business being reported as "held for sale" in 1995. When the sales of this continuing business are included in 1995 and after adjusting for the effect of a business disposed of in 1996, worldwide medical devices sales were comparable to the year ended 1995. Higher sales of needles and syringes and cardiopulmonary instrumentation were offset by lower sales of ophthalmic products. Pro forma medical devices sales for the year ended 1996 included volume increases of 2%, offset by unfavorable foreign exchange of 2%. Worldwide medical devices sales increased 3% on a pro forma basis for the year ended 1995. Sales gains were led by higher sales of needles and syringes, tubes and catheters, tympanic thermometry products, probe covers and enteral feeding devices. The increase in worldwide medical devices sales in 1995 was composed of unit volume increases of 1% and favorable foreign exchange of 3%, offset by price decreases of 1%. Worldwide agricultural products sales increased 4% for the year ended 1996. U.S. agricultural products sales increased 4% for the year ended 1996. U.S. sales gains for the year ended 1996 were due primarily to higher sales of Counter insecticide and Prowl and Assert herbicides, offset, in part, by lower sales of Prestige herbicide. The increase in U.S. agricultural products sales for the year ended 1996 consisted of unit volume growth of 2% and price increases of 2%. Due to the seasonality of the U.S. agricultural products business, which is concentrated primarily in the first six months of the year, a majority of the U.S. agricultural products sales and results of operations are realized in the first half of the year. International agricultural products sales increased 4% for the year ended 1996. International sales gains for the year ended 1996 were due primarily to higher sales of Stomp (marketed as Prowl in the United States) herbicide, Fastac and Cascade insecticides, and Acrobat and Caramba fungicides, offset, in part, by the discontinuance of a licensed herbicide product. The increase in international agricultural products sales for the year ended 1996 consisted of unit volume increases of 4% and price increases of 3%, offset by unfavorable foreign exchange of 3%. Worldwide agricultural products sales increased 18% on a pro forma basis for the year ended 1995. U.S. agricultural products sales increased 8% for the year ended 1995 as unusually wet spring conditions resulted in the following: a shift in sales from pre-emergent herbicides to post-emergent herbicides; a shift in acreage from corn to soybeans; and an extended planting season into mid-July. These factors resulted in higher sales of Pursuit and Prowl herbicides and other crop protection products 39 which were offset partially by lower sales of Squadron and Scepter herbicides and Counter insecticide. The increase in U.S. agricultural products sales in 1995 was composed of unit volume increases of 7% and price increases of 1%. International agricultural products sales increased 28% for the year ended 1995 due primarily to higher sales of Prowl (marketed as Stomp internationally) and Pursuit herbicides, Caramba and Delan fungicides, and other international crop protection products. The increase in international agricultural products sales in 1995 was composed of unit volume increases of 21% and favorable foreign exchange of 7%. Unit volume increases were due primarily to favorable weather conditions in Europe throughout the 1995 growing season. On November 1, 1996, the Company completed the sale of a majority interest in the American Home Foods business. Sales of food products decreased 4% for the year ended 1996 due to the divestiture. Sales of the foods business were consolidated by the Company through October 31, 1996, representing 10 months of operating activity compared with a full year in 1995. Sales of food products decreased 18% for the year ended 1995. The sales decrease was due primarily to competitive new products and marketing activity and the timing and extent of trade incentives, promotions and product introductions. The decrease in sales of food products in 1995 was composed of unit volume decreases of 19%, offset by price increases of 1%. Cost of goods sold, as a percentage of net sales, decreased to 31.6% for the year ended 1996 compared with 33.9% in 1995 due primarily to a combination of favorable pharmaceutical and agricultural products sales mix and, to a lesser extent, cost savings and synergies. Cost savings and synergies resulted from the restructuring and consolidation of various manufacturing and quality control functions, primarily in the pharmaceutical business, related to the ACY acquisition and the Company's previously announced Organizational Effectiveness and Supply Chain programs. On a pro forma basis, cost of goods sold, as a percentage of net sales, decreased for the year ended 1995. The decrease was due, in part, to changes in the pharmaceutical and agricultural products sales mix and the realization of ACY acquisition-related synergies. Selling, general and administrative expenses, as a percentage of net sales, decreased to 37.1% for the year ended 1996 compared with 37.2% in 1995. Cost savings and synergies were offset partially by increased marketing and selling expenses related to pharmaceutical and consumer health care product introductions and pharmaceutical disease and health management programs. On a pro forma basis, selling, general and administrative expenses, as a percentage of net sales, increased for the year ended 1995. Lower selling and administrative expenses resulting from ACY acquisition-related synergies were offset by increased general expenses. Higher general expenses in 1995 were due, in part, to the reversal of certain litigation reserves in 1994 that no longer were required, which lowered 1994 general expenses. Research and development expenses increased 5.5% for the year ended 1996 compared with 1995. ACY acquisition-related synergies were more than offset by increased pharmaceutical research and development expenditures. On a pro forma basis, research and development expenses decreased for the year ended 1995 due primarily to ACY acquisition-related synergies. Pharmaceutical research and development expenditures accounted for 78% of total research and development expenditures in both 1996 and 1995. Pharmaceutical research and development expenses, as a percentage of worldwide pharmaceutical sales, exclusive of nutritional sales, were 15% in both 1996 and 1995. Interest expense, net decreased for the year ended 1996 compared with 1995 due primarily to the reduction in long-term debt related to the ACY acquisition during 1996. Average long-term debt outstanding during 1996 and 1995 was $6,914.7 million and $8,891.0 million, respectively. On a pro forma basis, interest expense, net decreased for the year ended 1995 due primarily to the reduction of long-term debt during 1995. The effective tax rate increased to 31.6% in 1996 from 31.1% in 1995 due primarily to the tax impact of the special charges related to the acquisition of the remaining equity interest in Genetics Institute, Inc. (G.I.), offset, in part, by the tax impact of the gain on the sale of a majority interest in the foods business. The effective tax rate increased to 31.1% in 1995 compared with 24.7% in 1994 due primarily to the non-deductibility of goodwill amortization related to the ACY acquisition and the reversal of certain tax reserves which lowered the tax provision in 1994. Also on June 30, 1995, the U.S. research tax credit expired, which negatively impacted the effective tax rate. These items were offset partially by additional Section 936 tax benefits derived from ACY manufacturing operations in Puerto Rico. Additional tax benefits also were recognized from the Company's manufacturing operations in Ireland. 40 Net income and net income per share for the year ended 1996 on an as-reported basis increased 12% and 9%, respectively, above 1995 levels. Net income and net income per share for the year ended 1996 included an after-tax gain on the sale of a majority interest in the foods business of $706.3 million or $1.11 per share and the special charges related to the acquisition of the remaining equity interest in G.I. aggregating $697.9 million or $1.10 per share. Net income and net income per share for 1995 included after-tax special charges aggregating $308.3 million or $0.50 per share, an after-tax restructuring charge of $117.2 million or $0.19 per share and an after-tax gain of $623.9 million or $1.01 per share from the sale of the oral health care business. Excluding the gain on the sale of a majority interest in the foods business and the special charges from 1996 results and the special charges, restructuring charge and the gain on the sale of the oral health care business from 1995 results, net income and net income per share for the year ended 1996 increased 27% and 23%, respectively, over 1995 amounts. This increase was due primarily to higher worldwide sales of pharmaceuticals, agricultural products and consumer health care products, favorable pharmaceutical and agricultural products sales mix, cost savings and synergies, and lower ACY acquisition-related interest expense, offset, in part, by increased pharmaceutical and consumer health care marketing and selling expenses and higher pharmaceutical research and development expenditures. Net income and net income per share for 1995 on an as-reported basis increased 10% and 9%, respectively, above 1994 levels. Excluding the special charges, the restructuring charge and the gain from the sale of the oral health care business from 1995 results, net income and net income per share on an as-reported basis decreased 3% and 4%, respectively, due primarily to the net dilution, as anticipated, resulting from the ACY acquisition. ACY operating results for 1995 were more than offset by acquisition-related interest expense and goodwill amortization. On a pro forma basis, net income and net income per share for 1995, excluding the items previously discussed from 1995 results, increased 16% and 15%, respectively, due principally to lower interest expense, increased net sales and cost savings from acquisition-related synergies with ACY and the Company's previously announced Organizational Effectiveness and Supply Chain programs. COMPETITION The Company is not dependent on any one patent- protected product or line of products for a substantial portion of its sales or results of operations. However, Premarin, the Company's conjugated estrogens product, which has not had patent protection for many years, does contribute significantly to sales and results of operations. Premarin is not currently subject to generic competition in the United States. A U.S. Food and Drug Administration (FDA) advisory committee meeting was held in July 1995 to discuss relative differences in safety and efficacy among estrogen products and to advise the FDA on the activity of various estrogenic components in Premarin relative to the FDA's review of applications for generic conjugated estrogens. The FDA advisory committee concluded that there is insufficient data to assess whether or not any individual component or combination of components of Premarin, other than estrone and equilin, must be present to achieve clinical efficacy and safety. In November 1996, the FDA published and sought comment on scientific data on the composition of conjugated estrogens. The Company cannot predict the timing or outcome of the FDA's action on currently pending applications for generic conjugated estrogen products. While the introduction of generic competition ordinarily is expected to significantly impact the market for a brand name product, the extent of such impact on Premarin and related products cannot be predicted with certainty due to a number of factors, including the nature of the product and the introduction of new combination estrogen and progestin products in the Premarin family. LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES The Company's $10.0 billion of credit facilities, which were initially established in 1994 to finance the ACY acquisition, were amended to $7.0 billion in 1995 and were further amended to $6.0 billion in 1996. The amended credit facilities are composed of a $3.0 billion, five-year credit facility and a $3.0 billion, 364-day credit facility. In 1995, the Company issued, under a $3.5 billion shelf registration statement, $1.0 billion of 7.70% notes due February 2000 and $1.0 billion of 7.90% notes due February 2005. Net proceeds from these issuances were used to repay commercial paper. The 41 notes are unsecured and unsubordinated and may not be redeemed prior to maturity. In connection with the $2.0 billion note issue, the Company terminated $2.0 billion of the interest rate swap agreements that previously had been entered into. The cost to unwind these swap agreements was deferred and is being amortized to interest expense over the five- and 10-year terms of the related notes. At December 31, 1996, there were $250 million of 6.875% non-callable notes due April 15, 1997 classified as long term since the Company intends and has the ability to refinance these notes on a long-term basis. As of December 31, 1996, the Company has included the issuance of the commercial paper used to finance the $1.279 billion acquisition of the remaining equity interest in G.I. Cash flows from operations continued to be strong in 1996. Cash flows from operating activities of $2.4 billion, proceeds from sales of businesses and other assets of $1.5 billion and proceeds from the exercise of stock options of $412 million were used principally for long-term debt reduction of $1.8 billion, purchases of remaining equity interests in Genetics Institute, Inc. and another subsidiary of $1.3 billion, dividend payments of $994 million and capital expenditures of $652 million. These activities resulted in a net decrease in cash and cash equivalents during 1996. Capital expenditures included the expansion of the Company's research and development facilities and continued strategic investments in manufacturing, distribution and administrative facilities worldwide. The Company believes that the foreign currency risks to which it is exposed are not reasonably likely to have a material adverse effect on the Company's cash flows, results of operations or financial position given the concentration of sales in the United States. No single foreign currency accounted for more than 5% of 1996 worldwide sales. The ratio of earnings to fixed charges increased to 5.6 in 1996 from 4.4 in 1995. The increase was due primarily to reduced fixed charges, which resulted from lower interest expense due to the reduction in long-term debt, and increased earnings from operations before taxes. The reduction in long-term debt in 1996 was due primarily to cash flows from operating activities. In late 1996, the Company entered into a definitive purchase agreement to acquire the worldwide animal health business of Solvay S.A. for approximately $460 million. The acquisition will be financed partially through the issuance of commercial paper and is expected to be completed during the first quarter of 1997. The Company's objectives are to continue to further reduce its current debt position, including, but not limited to, additional sales of non-strategic assets. Synergies from the ACY acquisition are expected to continue to increase operating cash flows, though not at the pace realized in 1996 and 1995. Management is confident that the cash flows from the combined businesses will be adequate to repay both the principal and interest on the remaining acquisition financing without requiring the disposition of any significant strategic core businesses or assets and, further, to allow the Company to continue to fund its operations, pay dividends and maintain its ongoing programs of capital expenditures, including the amount already committed at December 31, 1996 of approximately $322 million, without restricting its ability to make further acquisitions as may be appropriate. COMPANY STATEMENTS FOR FORWARD LOOKING INFORMATION This annual report, including management's discussion and analysis set forth above, contains certain forward-looking statements, including statements regarding the Company's results of operations, financial position and potential competition. These forward-looking statements are based on current expectations. Certain factors which could cause the Company's actual results to differ materially from expected and historical results have been identified by the Company in Exhibit 99 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and the Company's 1996 Annual Report on Form 10-K, which will be filed by March 31, 1997. 42 BOARD OF DIRECTORS John R. Stafford(1),(5) Chairman, President and Chief Executive Officer Clifford L. Alexander, Jr.(2),(4),(5) President, Alexander & Associates, Inc. Frank A. Bennack, Jr.(1),(3),(5) President and Chief Executive Officer, The Hearst Corporation Robert G. Blount(1) Senior Executive Vice President Robin Chandler Duke(3),(5) National Chair, Population Action International John D. Feerick(2),(5) Dean, Fordham University School of Law Fred Hassan Executive Vice President John P. Mascotte(3),(5) Consultant Mary Lake Polan, M.D., Ph.D.(4),(5) Chairman, Department of OB/GYN, Stanford University School of Medicine Ivan G. Seidenberg(2),(5) Chairman and Chief Executive Officer, NYNEX Corporation John R. Torell III(4),(5) Chairman, Torell Management Inc. William Wrigley(2),(5) President and Chief Executive Officer, Wm. Wrigley Jr. Company DIRECTORS EMERITI - ----------------- John W. Culligan Retired - Former Chairman of the Board William F. Laporte Retired - Former Chairman of the Board (1) Executive Committee (2) Audit Committee (3) Compensation and Benefits Committee (4) Corporate Issues Committee (5) Nominating Committee PRINCIPAL OFFICERS PRINCIPAL CORPORATE OFFICERS John R. Stafford(6),(7) Chairman, President and Chief Executive Officer Robert G. Blount(6),(7) Senior Executive Vice President Fred Hassan(6),(7) Executive Vice President Joseph J. Carr(6),(7) Senior Vice President Louis L. Hoynes, Jr.(6),(7) Senior Vice President and General Counsel William J. Murray(6),(7) Senior Vice President David M. Olivier(6),(7) Senior Vice President John B. Adams Vice President-Corporate Development Egon E. Berg Vice President and Associate General Counsel Thomas G. Cavanagh Vice President-Investor Relations John R. Considine(6),(7) Vice President-Finance Leo C. Jardot Vice President-Government Relations Gerald A. Jibilian Vice President and Associate General Counsel Paul J. Jones(6) Vice President and Comptroller Rene R. Lewin(6) Vice President-Human Resources Thomas M. Nee(6) Vice President-Taxes Edward A. Schefer Vice President-Management Information Systems Steven A. Tasher Vice President-Environmental Affairs and Associate General Counsel-Environment Eileen M. Lach Secretary Jack M. O'Connor Treasurer PRINCIPAL DIVISION AND SUBSIDIARY OFFICERS Cyanamid Agricultural Products Howard L. Minigh, Ph.D.(7), President Cyanamid Agricultural Products Research Mark W. Atwood, Ph.D., President Cyanamid International Agricultural Products Marco A. Fonseca(7), President Fort Dodge Animal Health Division E. Thomas Corcoran(7), President Genetics Institute, Inc. L. Patrick Gage, Ph.D.(7), President Immunex Corporation* Edward V. Fritzky, Chairman and Chief Executive Officer Quinton Instrument Company Steven C. Tallman, President Sherwood-Davis & Geck David A. Low(7), President Specialty Pharmaceuticals Division David G. Strunce, President Storz Instrument Company Robert H. Blankemeyer, President Whitehall International, Inc. Jean-Claude Leroux(7), President Whitehall-Robins Healthcare Terrence L. Stecz(7), President Wyeth-Ayerst International, Inc. Bernard Poussot(7), President Wyeth-Ayerst Laboratories Robert Essner(7), President Wyeth-Ayerst Research Robert I. Levy, M.D.(7), President (6) Finance Committee (7) Operations Committee * AHP is majority owner 43 [GRAPHIC] CORPORATE DATA INDEPENDENT AUDITORS Arthur Andersen LLP EXECUTIVE OFFICES American Home Products Corporation Five Giralda Farms Madison, NJ 07940 (201) 660-5000 ANNUAL MEETING The Annual Meeting of Shareholders will be held on April 28, 1997, in Mahwah, New Jersey. FORM 10-K A copy of the Company's Form 10-K Annual Report to the Securities and Exchange Commission may be obtained by any shareholder without charge upon request to: American Home Products Corporation Treasurer's Department Five Giralda Farms Madison, NJ 07940 (201) 660-6936 SHAREHOLDER ACCOUNT INFORMATION ChaseMellon Shareholder Services, L.L.C. is the transfer agent, registrar, dividend disbursing agent and dividend reinvestment agent for the Company. Shareholders of record with questions about lost certificates, lost or missing dividend checks, or notification of change of address should contact: ChaseMellon Shareholder Services, L.L.C. Overpeck Center 85 Challenger Road Ridgefield Park, NJ 07660 (800) 565-2067 For the hearing impaired: (800) 231-5469 (TDD) MASTER INVESTMENT PLAN The plan provides shareholders of record with the opportunity to automatically reinvest dividends or to make cash purchases of additional shares of the Company's common stock. Inquiries should be directed to ChaseMellon Shareholder Services, L.L.C. EQUAL EMPLOYMENT OPPORTUNITY Our established affirmative action and equal employment programs demonstrate our long-standing commitment to provide job and promotional opportunities for all qualified persons regardless of age, color, national origin, physical or mental disability, race, religion, sex, status as a Vietnam-era veteran or a special disabled veteran, or any military uniformed services obligation. POLICY ON HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION A copy of the Company's "Policy on Health, Safety and Environmental Protection" may be obtained upon written request to: American Home Products Corporation Department of Environment and Safety Five Giralda Farms Madison, NJ 07940 AHP ON THE INTERNET American Home Products' Internet address is: [http://www.ahp.com]. Product designations appearing in differentiated type are trademarks. Design: Context Inc., South Norwalk, CT Text: Gabbe & Gabbe Executive Photography: John Madere Location Photography: Mark Tuschman and Ted Horowitz Product Photography: Jim Barber Printing: Avanti/Case-Hoyt [LOGO]This report is printed on recycled paper. 44 AMERICAN HOME PRODUCTS CORPORATION Five Giralda Farms Madison, New Jersey 07940 [GRAPHIC] EX-21 18 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT DECEMBER 31, 1996 State or Country Name of Incorporation Domestic AH Investments Ltd. Delaware A.H. Robins Company, Incorporated Delaware AHP Subsidiary Holding Corporation Delaware American Cyanamid Company Maine Ayerst Laboratories Incorporated New York Ayerst-Wyeth Pharmaceuticals Incorporated Delaware Cyanamid Agricultural de Puerto Rico, Inc. New Jersey Cyanamid International Corporation Limited Delaware ESI Lederle Inc. Delaware Genetics Institute, Inc. Delaware Immunex Corporation Washington Lederle Parenterals, Inc. New Jersey Lederle Piperacillin, Inc. New Jersey Quinton Instrument Company Washington Route 24 Holdings, Inc. Delaware Sherwood Medical Company Delaware Wyeth Laboratories Inc. New York Foreign AHP Manufacturing B.V. Netherlands American Home Products Holding (UK) plc Great Britain Cyanamid Finance B.V. Netherlands Cyanamid GmbH Germany Cyanamid Iberica, S.A. Spain State or Country Name of Incorporation Cyanamid Italia, S.p.A. Italy Cyanamid (Japan), Ltd. Japan Cyanamid of Great Britain Limited Great Britain Cyanamid Quimica do Brasil Ltda. Brazil Cyanamid Taiwan Corporation Taiwan Dimminaco AGSA Ltd Switzerland John Wyeth & Brother Limited Great Britain Laboratorios Wyeth-Whitehall Ltda. Brazil L.W. Investments Limited Bermuda Nippon Sherwood Medical Industries Ltd. Japan Wyeth (Japan) Corporation Japan Wyeth Australia Pty. Limited Australia Wyeth-Ayerst Canada Inc. Canada Wyeth-Lederle France Wyeth-Pharma G.m.b.H. Germany Wyeth Philippines, Inc. Philippines There have been omitted from the above list the names of subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 19 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated January 28, 1997 included in American Home Products Corporation's (the Company) Annual Report to Shareholders for the year ended December 31, 1996. Furthermore, we consent to the incorporation of our reports dated January 28, 1997 included in or made part of this Form 10-K, into the Company's previously filed Registration Statements on Form S-3 (File Nos. 33-45324 and 33-57339) and on Form S-8 (File Nos. 2-96127, 33-24068, 33-41434, 33-53733, 33-55449, 33-45970, 33-14458, 33-50149, 33-55456 and 333-15509). ARTHUR ANDERSEN LLP New York, N.Y. March 27, 1997 EX-27 20
5 EXHIBIT 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AMERICAN HOME PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND CONSOLIDATED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 1,322,297 221,820 2,745,835 204,121 2,389,369 7,470,419 6,254,666 2,217,933 20,785,343 4,337,635 6,020,575 213,328 0 79 6,748,685 20,785,343 14,088,326 14,088,326 4,449,783 4,449,783 1,429,056 0 433,034 2,755,460 872,057 1,883,403 0 0 0 1,883,403 2.91 2.91
EX-99 21 Exhibit No. 99 Exhibit 99 to the Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996 Cautionary Statements Regarding "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The Company's Annual Report to Shareholders and its periodic reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 1996, are among certain communications by the Company which contain forward looking statements, including statements regarding its financial position, results of operations, market position and product development. These forward looking statements are based on current expectations. As permitted by the Private Securities Litigation Reform Act of 1995, the Company is hereby filing the following cautionary statements identifying important factors which, among others, could cause the Company's actual results to differ materially from expected and historical results: Changing business conditions including inflation and fluctuations in interest rates and foreign currency exchange rates. Competitive factors including managed care groups, institutions and government agencies seeking price discounts; technological advances attained by competitors; patents granted to competitors; potential generic competition for PREMARIN and for other health care and agricultural products as such products mature. Government laws and regulations affecting U.S. and international operations, including trade, monetary and fiscal policies, taxes (including the Section 936 income tax credit), price controls, changes in governments and legal systems, as well as actions affecting approvals of products and licensing. Difficulties or delays in product development including, but not limited to, the inability to identify viable new chemical compounds, successfully complete clinical trials, obtain and maintain regulatory approval for the compounds or gain and maintain market acceptance of approved products. Similar difficulties or delays can also affect the development of the Company's other businesses. Growth in costs and expenses, including changes in product mix, and the impact of any acquisitions or divestitures, restructuring and other unusual items that could result from evolving business strategies, evaluation of asset realization, and changing organizational structures. Significant litigation adverse to the Company including product liability risks related to the Company's health care and other products. Continued consolidation in the pharmaceutical industry could affect the Company's competitive position. -----END PRIVACY-ENHANCED MESSAGE-----